Arkansas Homeowner Tax Benefits Explained: Keep More of Your Money When You Buy, Own, Rent, or Sell

Owning a home in Arkansas can unlock meaningful savings—at closing, every April, and when you eventually sell. This guide breaks down the federal and Arkansas-specific benefits most owners overlook, including the Homestead Property Tax Credit, senior/disabled assessment freezes, mortgage interest and SALT deductions, IRS §121 capital-gains exclusion on your primary home, 1031 exchanges for rentals, the 14-day “Augusta Rule”, Mortgage Credit Certificates (when available), and the new federal energy-efficiency credits.

Quick Arkansas facts

• No Arkansas inheritance or estate tax. (Federal estate tax may apply to very large estates.)

• Property tax relief exists: homestead credit, senior/disabled assessment freeze, and special relief for certain disabled veterans.

• Selling your main home? Many owners can exclude up to $250,000 of gain ($500,000 if married filing jointly) under IRS §121.

1) Upfront & Annual Property-Tax Savings (Arkansas)

Homestead Property Tax Credit

Arkansas homeowners who claim a primary residence (“homestead”) receive an annual credit (commonly up to a few hundred dollars) off their property tax bill. Check your county assessor to verify you’re enrolled—many folks forget to file once and miss it for years.

Senior/Disabled Assessment Freeze (Amendment 79)

At age 65+ or if permanently disabled, Arkansas can freeze the assessed value of your homestead (improvements aside), slowing future tax increases. Apply with your county assessor.

Disabled Veteran Exemption

Qualifying 100% disabled veterans (and eligible surviving spouses/dependents) may receive full property-tax relief on a homestead. Documentation is required.

Action step: Call your County Assessor to (1) claim the homestead credit, (2) file the senior/disabled freeze when eligible, and (3) ask about veteran relief.

2) Federal Income-Tax Deductions While You Own

Mortgage Interest Deduction

Itemizers may deduct interest on acquisition debt up to $750,000 (post-2017 loans; older loans may have a $1M cap). If you take the standard deduction, you won’t also itemize mortgage interest—run both scenarios.

SALT Deduction (State and Local Taxes)

Itemizers can deduct property taxes + state/local income/sales taxes up to the $10,000 SALT cap per return.

Tip: If you’re close to itemizing, consider bunching deductions (charity, property tax timing) into one tax year.

Mortgage Credit Certificate (MCC) — when available

When issued by a state housing agency (watch ADFA—Arkansas Development Finance Authority), an MCC can provide a federal tax credit (often up to $2,000/year) equal to a percentage of annual mortgage interest. Availability and terms vary—ask your lender or ADFA.

3) Renting Your Home or a Room: What’s Taxable (and What Isn’t)

The 14-Day “Augusta Rule” (IRC §280A(g))

If you rent your personal residence for 14 days or fewer in a year (think: big games, festivals, corporate retreats), that rental income is tax-free—you don’t report it. Over 14 days? It’s taxable.

Renting a Room/ADU Long-Term

Rent is taxable, but you can allocate and deduct a share of mortgage interest, property taxes, utilities, insurance, repairs, and depreciation tied to the rented space. Keep a simple floor-area percentage worksheet.

QBI bonus: Some rental activities may qualify for the 20% qualified business income (QBI) deduction—ask your tax pro about safe harbor rules.

4) Big Savings When You Sell Your Primary Home

Capital-Gains Exclusion (IRS §121)

If you owned and used the home as your principal residence for 2 of the last 5 years, you can typically exclude up to $250,000 of gain ($500,000 married filing jointly). No age limit; you can use it repeatedly (with spacing rules).

What counts toward basis? Purchase price + major capital improvements (roof, addition, systems) − casualty losses + certain selling costs. Keep receipts/photos.

Arkansas state tax: Arkansas conforms in broad strokes to federal gain concepts; your CPA will compute any state income-tax impact after federal exclusions.

5) Selling Rentals & Second Homes

1031 Like-Kind Exchange (Investment Property)

Defer capital gains and depreciation recapture by rolling proceeds into another like-kind U.S. investment property using a qualified intermediary (tight 45-/180-day deadlines). Primary residences don’t qualify.

Depreciation Recapture

When you sell a rental, prior depreciation reduces basis; the recapture portion is taxed (up to 25%). Plan ahead (e.g., 1031, installment sales, opportunity zones—ask your advisor).

6) Federal Energy Credits & Rebates (Great for Arkansas Homes)

Energy Efficient Home Improvement Credit (25C)

Through 2032, claim 30% of qualified upgrades (annual caps apply) for: insulation/air sealing, exterior doors/windows/skylights, heat-pump water heaters, certain HVAC, electrical panel upgrades, and more.

Residential Clean Energy Credit (25D)

30% credit for solar PV, battery storage, geothermal, certain fuel cells. No annual cap (but limited to your tax liability; excess may carry forward).

Utility/Local Rebates

Arkansas utilities often offer cash rebates for heat pumps, smart thermostats, insulation, etc. Stack these with federal credits.

Pro move: Do an energy audit first—some auditor costs qualify for a credit, and you’ll target the biggest bill-cutters.

7) First-Time Buyer Help in Arkansas

• Down-payment/closing-cost assistance: Check ADFA for current programs and income/price limits.

• MCC (see Section 2) when offered.

• USDA/RD & FHA/VA loans: Flexible down payments and underwriting for eligible buyers/areas.

8) Estate & Inheritance Basics for Arkansas Homeowners

• Arkansas has no inheritance or state estate tax.

• Federal estate tax applies only to very large estates (the exemption is historically high now and scheduled to drop in 2026 absent new law).

• Heirs typically receive a step-up in basis on inherited property (reduces capital gains if they sell).

• Beneficiary (Transfer-on-Death) Deeds can pass your home outside probate—tax treatment doesn’t change, but transfers are simpler.

Practical Examples

Example A — Selling your Little Rock primary home

Bought for $210,000; $60,000 in improvements; sell for $375,000. Costs of sale $22,000.

• Adjusted basis = 210k + 60k = $270k

• Gain before exclusion = 375k − 270k − 22k = $83k

• All excluded under §121 (MFJ up to $500k). Likely no federal tax on the sale.

Example B — Renting your house 10 days during a tournament

Collected $9,000. Rented ≤14 days total this year.

• $9,000 is tax-free (Augusta Rule). No rental schedule required.

Example C — Heat-pump + insulation upgrade

Spent $8,000 on a heat pump and $2,000 on insulation.

• 30% credit applies (annual category caps apply under 25C).

• Combine with Entergy Arkansas rebates to cut net cost further.

Quick Checklist (Save/Print)

• File for Homestead Credit with your County Assessor

• Add senior/disabled freeze when eligible

• Confirm disabled-veteran relief (if applicable)

• Run itemize vs. standard deduction (mortgage interest + SALT)

• Ask lender/ADFA about MCC

• Track capital improvements (basis file)

• Know your §121 timeline before selling

• For rentals: set up separate records (expenses, depreciation)

• Explore 25C/25D energy credits + utility rebates

• Keep an eye on 1031 rules for investment property

FAQs

Is my homestead credit automatic?

No—apply once with your assessor; it stays on your account while you occupy the home.

Can I deduct property taxes and mortgage interest if I take the standard deduction?

No. Those are itemized deductions. Compare both ways each year.

If I gift my home to my child, do we avoid tax?

You may create gift-tax filing and lose the future step-up in basis. Often it’s better to plan for inheritance via beneficiary deed or trust—talk to an Arkansas attorney/CPA.

Does a Beneficiary (TOD) Deed reduce taxes?

It avoids probate, but it doesn’t change income-tax rules. Heirs typically still get a step-up in basis at death.

Plain-English Disclaimer

This is general education—not tax or legal advice. Programs and amounts change. Before you act, consult an Arkansas CPA/EA and, for deeds/estate tools, an Arkansas real-estate/estate-planning attorney.