Short-Term Rental Taxes in Connecticut: What Investors Need to Know in 2025

Connecticut's STR market is more modest than neighboring Massachusetts or the Jersey Shore, but the state has distinct STR destinations: Mystic (maritime history and Mystic Seaport), the Litchfield Hills (rural villages, wineries, and weekend retreats), and the Connecticut shoreline towns. Connecticut's 15% room occupancy tax is one of the highest statewide rates in the country, and the state's non-conformity to federal bonus depreciation adds planning complexity.

Connecticut State Income Tax on Rental Income

Connecticut has a graduated income tax with rates from 3% to 6.99%. The 6.99% top rate applies to income over $500,000 ($600,000 for joint filers). Most active STR investors with meaningful rental income will face CT rates in the 5–6.99% range. Connecticut begins with federal AGI and makes state-specific modifications, including adding back federal bonus depreciation.

Connecticut's 15% Room Occupancy Tax

Connecticut's 15% room occupancy tax on short-term rentals is a standout in the national landscape — one of the highest statewide lodging tax rates in the country. This tax applies to accommodations under 30 days and is collected from guests. STR operators must register with the Connecticut Department of Revenue Services (CT DRS) as room operators to collect and remit this tax.

From an investor's perspective, the 15% rate is passed through to guests and does not directly reduce net income — but it can affect competitiveness and pricing relative to lower-tax neighboring states. Properties near the Massachusetts border compete with lower-tax alternatives; pricing strategy matters.

Connecticut Bonus Depreciation Non-Conformity

Connecticut does not conform to federal bonus depreciation and has its own depreciation method that differs from standard MACRS with bonus. Investors must add back any federal bonus depreciation deduction on their CT returns and use Connecticut's alternative depreciation schedule. At a top CT rate of 6.99%, the first-year state tax impact of the disallowed bonus deduction can be substantial for investors in higher brackets.

Top Connecticut STR Markets

Mystic: Connecticut's most visited tourist attraction (Mystic Seaport, Mystic Aquarium) anchors a strong STR market in southeastern CT. The maritime heritage, charming village character, and proximity to Providence and New London drive year-round demand. Mystic STR properties tend to be historic New England homes and cottages.

Litchfield Hills: The rolling hills of northwestern Connecticut draw weekend travelers from New York City (2–2.5 hours) seeking New England village charm, farm-to-table dining, and antique shopping. Litchfield, Kent, Washington, and Salisbury are the primary towns. The region has a compact but quality STR market with a premium demographic.

Connecticut Shoreline: The towns along Long Island Sound — Old Saybrook, Essex, Madison, Guilford — offer coastal STR opportunities with proximity to both New York and Boston. The shoreline market is seasonal but produces strong summer revenue.

Cost Segregation in Connecticut

Despite Connecticut's challenging state tax environment, federal cost segregation benefits are fully preserved. A $500,000 Litchfield Hills property with $120,000 in cost seg deductions at 37% federal generates $44,400 in year-one federal savings. The CT state timing penalty at a 6% effective rate is approximately $7,200 in year one — a meaningful but temporary cost relative to the federal benefit.