Connecticut taxes for real estate investors: a Fairfield County guide

Connecticut starts its income tax from your federal adjusted gross income, so most federal real estate rules carry over. Four features of the state system don't: a transfer tax the seller pays on every sale, property taxes set town by town, an add-back that delays the state benefit of bonus depreciation, and a 15% tax on short stays. This guide explains how each one affects investors in Fairfield County and the rest of the state.

The real estate conveyance tax

When the deed is recorded, the seller pays a state tax at rates from 0.75% to 2.25%, depending on property type and price, plus a municipal tax of 0.25% to 0.50%. The buyer normally pays none of it.

The state rate turns on how the seller used the property:

The tiers in the first row are marginal and apply to the total price, even when a sale uses more than one deed.

Every town adds 0.25%. Targeted investment communities may add up to another 0.25%, and three Fairfield County towns are eligible: Bridgeport, Norwalk and Stamford. The most recent official survey we found, published by the Office of Legislative Research in 2020, reported that Bridgeport and Norwalk charge the full extra 0.25%, while Stamford charges 0.10% on sales up to $1 million and 0.25% above that amount. We couldn't confirm the current local rates, so check with the town clerk before closing.

Two related rules matter for investors who hold property in LLCs. Selling a controlling interest, meaning more than 50%, in an entity that owns Connecticut real estate triggers the controlling interest transfer tax of 1.11% of the property's value, which the seller also pays. Moving property into your own LLC with no change in beneficial ownership is exempt from the conveyance tax, although the deed must still be reported on Form OP-236 with the exemption claimed.

Key numbers: conveyance tax of 0.75%–2.25% state plus 0.25%–0.50% local, paid by the seller, with 0.75% flat on multi-unit housing · 1.11% controlling interest transfer tax · property assessed at 70% of market value · 100% of federal bonus added back, then subtracted 25% a year for four years · 80% of §179 added back · 15% room occupancy tax on stays of 30 days or less.

Local property tax on rentals

Each town sets a mill rate, the tax per $1,000 of assessed value, and assesses property at 70% of the market value set at its last revaluation, not at your purchase price. The rates below, from the Office of Policy and Management, are for FY2027, the fiscal year from July 1, 2026 to June 30, 2027, and are based on the October 1, 2025 grand list:

For Stamford and Norwalk, use the district shown on your tax bill. The state dataset also lists a single town-wide figure for each city, but that figure doesn't match any district's rate.

On a rental, property tax is a Schedule E expense. The federal SALT cap doesn't apply to taxes paid in an income-producing activity, so the full amount offsets rental income.

Bonus depreciation in Connecticut

Connecticut does not follow federal bonus depreciation for the personal income tax. The state adds back 100% of federal bonus depreciation in the year you deduct it, then lets you subtract 25% of that add-back in each of the next four years. Section 179 is partly decoupled, with 80% of the federal deduction added back and recovered at 25% a year over the following four years.

For a cost segregation study, the add-back has four consequences:

• The state benefit is delayed, not lost. The federal deduction in year one is unchanged, and the Connecticut deduction for the same components arrives in years two through five. Building depreciation over 27.5 or 39 years isn't affected.
• Suspended losses need tracking. DRS instructions limit the add-back to bonus deducted in arriving at federal AGI for the year, so if part of a loss is suspended under the passive rules, keep a record of how much of the suspended amount is bonus.
• Entities follow the same rule. A partnership or S corporation that elects Connecticut's pass-through entity tax makes the same add-back and recovery at the entity level.
• A schedule of the subtractions is worth keeping, because the statute ties each 25% subtraction to the four years after the add-back, with no exception for property you have since sold or exchanged.

Short-term rentals and the room occupancy tax

Stays of 30 days or less in a furnished home, apartment or condo are subject to Connecticut's 15% room occupancy tax. Booking platforms that facilitated at least $250,000 of rentals in the prior 12-month period must collect and remit it. If you book only through those platforms, you don't need to register.

• You must report direct bookings yourself. Register with DRS, which costs $100 unless you already hold a sales tax permit, and file Form OP-210 by the last day of the month after each period, covering only your direct sales.
• Contracts of 90 consecutive days or more and unfurnished rentals aren't taxable, but a shorter contract, even month-to-month, is taxed on its first 30 days.
• Cleaning fees and other charges that come with the stay are taxable whether or not they are listed separately.
• Since October 1, 2024, municipalities may adopt ordinances that regulate and license short-term rentals, so check the rules in your town.

The federal short-term rental rules carry over, although the bonus add-back reduces the Connecticut loss in year one.

Nonresident sellers and withholding

Connecticut doesn't require the buyer or closing attorney to withhold state income tax from a nonresident seller. Neither the withholding statute nor DRS's withholding regulations contain such a rule. The gain is still Connecticut-source income, however, so a nonresident seller reports it on Form CT-1040NR/PY and should cover the tax with an estimated payment, which the state expects when tax not covered by withholding is $1,000 or more. Foreign sellers are a separate matter, because federal FIRPTA withholding, generally 15% of the amount realized, still applies.

1031 exchanges in Connecticut

Connecticut follows the federal deferral, but the conveyance tax is still due. Because the state starts from federal AGI, gain deferred under §1031 also stays out of Connecticut income. We found no Connecticut provision that tracks deferred gain into out-of-state replacement property, as some states do.

• The seller's conveyance tax still applies. The statute's exemptions don't include like-kind exchanges, so the tax on the relinquished property is due when the deed is recorded. As the buyer of the replacement property, you normally pay none.
• Any 25% subtractions remaining from earlier bonus add-backs continue on their schedule.

A worked example: a three-family in Fairfield

The following hypothetical purchase shows how these rules combine. Pat and Lee, Connecticut residents filing jointly, sign a contract and buy a three-family rental in the town of Fairfield for $1,200,000 in March 2026. They allocate $300,000 to land, leaving $900,000 of depreciable basis, and a cost segregation study moves 25%, or $225,000, into 5-, 7- and 15-year property. Lee qualifies as a real estate professional and materially participates, so the federal loss is deductible.

• For federal purposes, $225,000 is deducted with 100% bonus in 2026, and the other $675,000 is depreciated over 27.5 years.
• On the Connecticut return, the $225,000 is added back for 2026, then $56,250 is subtracted in each of 2027, 2028, 2029 and 2030. If they are in Connecticut's top 6.99% bracket, which applies to joint taxable income over $1 million, that moves $15,727.50 of Connecticut tax into 2026 and gives back $3,931.88 a year for four years.
• Property tax depends on the assessment. If the assessor's market value is $1,000,000, the assessment is 70%, or $700,000, and at Fairfield's FY2027 rate of 19.19 mills the tax is $700,000 × 19.19 ÷ 1,000 = $13,433.

Years later they sell for $1,500,000. Because the property is a three-family, it pays $11,250 at the flat 0.75% state rate plus $3,750 at Fairfield's 0.25% municipal rate, or $15,000 in all. That amount is due at recording whether or not they exchange. A single-family rental at the same price would pay the tiered rates instead: 0.75% of $800,000 ($6,000) plus 1.25% of $700,000 ($8,750), for $18,500 including the town's share.

Common mistakes

1. Expecting the cost segregation deduction to reach the Connecticut return in year one.
2. Using the town-wide mill rate for a Stamford or Norwalk property instead of its district rate.
3. Budgeting single-family conveyance tiers for a multi-unit sale, or forgetting the local add-on in Bridgeport, Norwalk or Stamford.
4. Overlooking the 6.35% sales tax on services to rental property. DRS treats rentals as income-producing property, so repair, renovation and management services there are taxable. The exception for owner-occupied homes covers one- to three-family houses only when the owner lives there.
5. Taking direct short-term bookings without registering for room occupancy tax.
6. A nonresident seller skipping the Connecticut estimated payment because nothing was withheld at closing.

How Summer Associates helps

Summer Associates, based in Stamford, prepares multi-state rental returns that carry the Connecticut add-backs and their four-year recovery forward correctly. We include the state effect in the cost segregation estimate we run before you order a study, and we model exchange versus sale, conveyance tax included, with your qualified intermediary.

This guide is general education based on federal and Connecticut law as of 2026-11-15. State rules differ and facts matter. Before acting, get advice for your situation from Summer Associates or another qualified advisor.