Arkansas Amendment 79: The Property Tax Trap That Catches BRRRR Investors

Arkansas's Amendment 79 property tax cap is one of the most investor-friendly provisions in the state — until it disappears. Investment property owners enjoy constitutional protection capping annual assessment increases at 10%, which insulates cash flow from sudden tax spikes after countywide reappraisals. But a single renovation that crosses the 25% substantial improvement threshold strips that protection completely, triggering immediate unrestricted reassessment to full post-renovation market value.

BRRRR investors, fix-and-flip operators, and value-add buyers who model their pro formas using the Amendment 79 cap — without modelling what happens when the renovation crosses the threshold — are building their returns on an assumption that may not hold.

This post explains how Amendment 79 works, exactly where the threshold sits, how to calculate it for a specific property, and how to structure renovation budgets to preserve the cap when it matters.

How Amendment 79 Works

Amendment 79 of the Arkansas Constitution was enacted to protect property owners from sudden, aggressive tax increases following countywide reappraisals. The mechanism is straightforward:

• Property taxes in Arkansas are calculated on 20% of the property's appraised market value, multiplied by the local millage rate
• Millage rates vary by county: Benton County (Bentonville School District) is currently 46.8 mills; Pulaski County (Little Rock) ranges from 48.3 to 58.4 mills depending on the school district
• Amendment 79 caps how quickly the assessed value can increase after a reappraisal

For owner-occupied homestead properties, the cap is 5% annual increase. For investment properties — commercial, non-owner-occupied residential, and rental properties — the cap is 10% per year until the assessed value reaches its newly appraised full value.

Practical effect: If a county reappraisal increases a Little Rock rental property's assessed value from $30,000 to $50,000, the property owner is not hit with the full new tax bill immediately. The assessment can increase by no more than 10% of the prior assessed value per year ($3,000 the first year, bringing assessed value to $33,000; then to $36,300; and so on) until it reaches $50,000. This can take years. The cap is a buffer against the full shock of market-driven reassessment.

The Substantial Improvement Exception

Amendment 79 explicitly removes this protection for properties that have undergone a "substantial improvement." Arkansas law defines a substantial improvement as any renovation, reconstruction, or refurbishment that adds 25% or more to the property's overall base value.

When a substantial improvement is made, the county may reassess the property immediately to its full post-improvement market value, with no cap on the increase in that cycle. The investor goes from paying taxes on a slowly-increasing assessed value to paying taxes on full current market value — in a single reassessment.

The base value for the 25% calculation is the property's assessed market value at the time of improvement, not the assessed value for tax purposes (which is 20% of market value). The distinction matters. If the county appraiser's market value estimate for a Little Rock duplex is $100,000, the 25% threshold is a $25,000 improvement. If the appraiser's market value estimate is $80,000, the threshold is $20,000.

The county assessor determines what qualifies as a "substantial improvement." Investors have limited ability to argue the calculation after the fact. The time to understand the threshold is before the renovation starts.

Real Numbers: What This Looks Like on a Deal

Scenario A: Below the Threshold

A value-add investor acquires a Little Rock duplex at $85,000. The county appraiser's market value estimate is $95,000 (assessed value for tax purposes: $19,000). Current annual property taxes at 50 mills: $950/year.

The investor plans a $20,000 renovation. The 25% threshold on the $95,000 appraiser market value is $23,750. The $20,000 renovation is below the threshold.

Post-renovation, if the property's market value increases to $130,000, the county can only apply the 10% annual cap to the pre-renovation assessment base. Tax exposure grows at 10% per year from $950, not to the full tax on $130,000 (which would be $1,300/year at 50 mills on 20% of value). The investor captures the forced appreciation without losing the tax protection.

Scenario B: Above the Threshold

Same acquisition. The investor plans a $30,000 renovation — kitchen, bathrooms, new HVAC. The $30,000 renovation exceeds the $23,750 threshold on a $95,000 appraiser value.

Post-renovation, the county reassesses to full post-renovation market value: $135,000. The assessed value for tax purposes is now $27,000 (20% of $135,000). Annual taxes at 50 mills: $1,350/year — up from $950. The cap is stripped for this assessment cycle. The investor sees a 42% increase in property taxes in one year.

On a $950/month rental, $400/year in additional property taxes reduces cash-on-cash return by approximately $33/month — not catastrophic, but real. And if the property is reassessed more aggressively (to $160,000 post-renovation), the tax impact is larger. The point is that the investor's pro forma was based on a cap that no longer applied.

Who This Affects Most

BRRRR investors. The BRRRR strategy's whole engine is forced appreciation through significant renovation. "Significant" renovations are, by definition, more likely to cross the 25% substantial improvement threshold. An investor targeting 30% to 40% forced appreciation should assume the Amendment 79 cap is gone for the post-renovation assessment cycle and model accordingly.

Fix-and-flip operators. The tax exposure during the holding period after rehab matters less for flippers who sell quickly — the property is only held for one assessment cycle. But investors who miscalculate the holding period and get caught at an assessment date will see the full post-renovation tax bill.

Rural value-add investors. Rural Arkansas properties often have deeply depressed appraiser market values — sometimes $30,000 to $50,000 for properties that need significant work. The 25% threshold on a $40,000 market value is $10,000. A rural investor putting $25,000 into a property to make it habitable has easily crossed that threshold. The post-renovation tax exposure may still be modest in absolute terms (property taxes are low in rural Arkansas), but the cap protection is gone.

Little Rock and Jonesboro investors. The cap rate appeal of Little Rock is partially built on predictable holding costs. Losing Amendment 79 protection on a heavily-renovated Little Rock property disrupts the cash flow model that made the market attractive.

How to Preserve the Cap When It Matters

Phase improvements across assessment cycles. If your total renovation budget exceeds the 25% threshold, split the work into two phases timed to occur in different assessment cycles. Complete one phase, let the assessment cycle close, then begin the second phase. This approach requires timing coordination and the discipline to stop work at the right moment — but it preserves the cap for each cycle separately.

Confirm the appraiser's market value before finalizing the budget. The 25% calculation uses the county appraiser's market value estimate, not your acquisition price or the assessed value for tax purposes. Request the current appraiser estimate from the county assessor's office before setting the renovation budget. Many county assessor offices provide this data online or by phone.

Model both scenarios in your pro forma. Run two versions of the return analysis: one with Amendment 79 protection intact, one with immediate reassessment to post-renovation market value. If the deal works in both scenarios, you have genuine margin. If the deal only works with the cap intact, you're carrying undisclosed tax risk.

Factor in the post-renovation holding period. If you're planning to refinance after renovation (BRRRR), the post-renovation assessment will affect your operating costs during the rental phase. Model the full annual tax bill at the post-renovation value, not at the current assessed value, when calculating the refinanced property's DSCR.

The Five-Submarket Picture

Amendment 79 risk is not uniform across Arkansas markets. Here's how the threshold plays out by submarket:

Northwest Arkansas (Bentonville, Rogers, Fayetteville): High appraiser market values mean the 25% threshold is a larger absolute dollar amount. A $425,000 Bentonville SFR has a threshold of $106,250 — a renovation of that size is unusual for a single-family rental. The cap is more resilient in NWA precisely because property values are higher. However, the post-renovation tax exposure is also larger: losing the cap on a $600,000 post-renovation valuation in Benton County (46.8 mills on 20%) produces a significant annual tax increase.

Fayetteville student housing: Properties near campus often have moderate appraiser values ($200,000 to $350,000) with renovation potential targeting student demand. The threshold is $50,000 to $87,500. Value-add renovations focused on student amenities (common areas, individual bathrooms, laundry) often approach or exceed this range.

Little Rock: Lower appraiser values ($80,000 to $200,000) mean the 25% threshold is lower in absolute dollars ($20,000 to $50,000). Value-add and BRRRR activity in Little Rock frequently crosses this threshold. Model explicitly.

Hot Springs: For STR properties in eligible zones, renovation to meet licensing standards (capacity, safety, inspection requirements) may or may not cross the threshold depending on the property's current market value. The STR revenue model should include a worst-case scenario with full post-renovation reassessment.

Rural corridors: Very low appraiser values ($30,000 to $80,000) mean the threshold can be as low as $7,500 to $20,000. Any meaningful rural renovation likely strips the cap. Model without it.

Frequently Asked Questions

How does Arkansas determine what qualifies as a "substantial improvement"? The county assessor makes the determination based on local property records, building permits, and physical inspection. Any renovation that adds 25% or more to the county appraiser's market value estimate for the property qualifies. Investors should request the current market value estimate from the assessor before finalizing renovation plans.

Does Amendment 79 protection reset after the reassessment? Yes. Once the county reassesses the property following a substantial improvement, the 10% annual cap applies going forward from the new assessed value. The protection is not permanently lost — it restarts from the post-renovation assessment base.

Do building permits trigger the substantial improvement review? Pulling permits can draw county assessor attention to a property. In Arkansas, counties vary in how actively they monitor permit activity and cross-reference it with property records. Investors should not skip required permits to avoid assessment review — that creates more serious legal exposure — but should understand that permitted work may prompt a reassessment inquiry.

If I phase my renovation to stay below the threshold, what documentation do I need? Keep detailed records of all renovation expenditures, timed to specific phases. If the assessor challenges your characterization of phased work as separate improvements rather than a single project, documentation showing separate contracts, separate completion dates, and a genuine break between phases strengthens your position. Consult an Arkansas real estate attorney before beginning a multi-phase strategy for properties near the threshold.

Where can I find the Amendment 79 Rehab Calculator mentioned in the Arkansas Investment Property Guide? The Arkansas Investment Property Guide includes a standalone Amendment 79 Rehab Calculator worksheet — a printable tool for modelling the 25% threshold, projecting post-renovation assessed values, and calculating the property tax impact before committing renovation capital. It's one of seven standalone printable tools included with the full guide.

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