Affordable Housing Exemption Mods.

GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2025
H 3
HOUSE BILL 1042
Committee Substitute Favorable 5/12/26
Committee Substitute #2 Favorable 5/19/26

Short Title: Affordable Housing Exemption Mods. (Public)
Sponsors:
Referred to:
April 27, 2026
*H1042-v-3*
A BILL TO BE ENTITLED 1
AN ACT TO UPDATE AND MODIFY THE NONPROFIT LOW- OR MODERATE-INCOME 2
HOUSING PROPERTY TAX EXEMPTION. 3
The General Assembly of North Carolina enacts: 4
SECTION 1. G.S. 105-278.6 reads as rewritten: 5
"§ 105-278.6. Real and personal property used for charitable purposes.purposes by certain 6
entities. 7
(a) Real and personal property owned by:by an entity listed in this subsection is exempt 8
from taxation if (i) as to real property, it is actually and exclusively occupied and used and, as to 9
personal property, it is entirely and completely used by the owner for a charitable purpose; and 10
(ii) the owner is not organized or operated for profit. The entities are: 11
(1) A Young Men's Christian Association or similar organization;organization. 12
(2) A home for the aged, sick, or infirm;infirm. 13
(3) An orphanage or similar home;home. 14
(4) A Society for the Prevention of Cruelty to Animals;Animals. 15
(5) A reformatory or correctional institution;institution. 16
(6) A monastery, convent, or nunnery;nunnery. 17
(7) A nonprofit, life-saving, first aid, or rescue squad organization;organization. 18
(8) A nonprofit organization providing housing for individuals or families with 19
low or moderate incomesincomes, other than rental housing. This subdivision 20
does not apply to rental housing, which must qualify under G.S. 105-278.7A 21
to be eligible for an exemption. 22
shall be exempted from taxation if: (i) As to real property, it is actually and exclusively occupied 23
and used, and as to personal property, it is entirely and completely used, by the owner for 24
charitable purposes; and (ii) the owner is not organized or operated for profit. 25
(b) A charitable purpose within the meaning of this section is one that has humane and 26
philanthropic objectives; it is an activity that benefits humanity or a significant rather than limited 27
segment of the community without expectation of pecuniary profit or reward. The humane 28
treatment of animals is also a charitable purpose. 29
(c) The fact that a building or facilit y is incidentally available to and patronized by the 30
general public, so long as there is no material amount of business or patronage with the general 31
public, shall does not defeat the exemption granted by this section. 32
(d) Notwithstanding the exclusive-use exclusive use requirements of this section, if part 33
of a property that otherwise meets the section's requirements is used for a purpose that would 34
General Assembly Of North Carolina Session 2025
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require exemption under subsection (a), above, if the entire property were so used, the valuation 1
of the part so used shall be exempted is exempt from taxation. 2
(e) Real property held by an organization described in subdivision (a)(8) for a charitable 3
purpose under this section as a future site for housing housing, ot her than affordable rental 4
housing as defined in G.S. 105-278.7A, for individuals or families with low or moderate incomes 5
may be classified under this section for no more than 10 five years. The taxes that would 6
otherwise be due on real property exempt under this subsection shall be are a lien on the property 7
as provided in G.S. 105-355(a). The taxes shall be are carried forward in the records of the taxing 8
unit as deferred taxes. The d eferred taxes are due and payable in accordance with 9
G.S. 105-277.1F when the property loses its eligibility for deferral as a result of a disqualifying 10
event. A disqualifying event occurs when the property was is not used for low - or 11
moderate-income housing within 10 five years from the first day of the fiscal year the property 12
was classified under this subsection. In addition to the provisions in G.S. 105-277.1F, all liens 13
arising under this subdivision are extinguished when the property is used for low - or 14
moderate-income housing within the time period allowed under this subsection." 15
SECTION 2. Article 12 of Chapter 105 of the General Statutes is amended by adding 16
the following new section to read: 17
"§ 105-278.7A. Real and personal property owned, in whole or in part, by a charitable 18
nonprofit and used for affordable rental housing. 19
(a) Exemption Generally. – Real and personal property owned by an eligible owner and 20
used for a charitable purpose in the operation of affordable rental housing is exempt from taxation 21
to the extent provided in this section if the requirements of this section are met. 22
(b) Definitions. – The following definitions apply in this section: 23
(1) Affiliate. – Defined in G.S. 105-130.2. 24
(2) Affordable rental housing. – A rental housing development consisting of land 25
and improvements in which more than fifty percent (50%) of the units are 26
qualifying units. 27
(3) Charitable purpose. – A charitable purpose within the meaning of this section 28
is one that has humane and philanthropic objectives; it is an activity that 29
benefits humanity or a significant rather than limited segment of the 30
community without expectation of pecuniary profit or reward. 31
(4) Eligible joint venture. – A limited partnership, limited liability c ompany, or 32
limited liability partnership in which a general partner or limited liability 33
company managing member is an eligible nonprofit corporation. 34
(5) Eligible nonprofit corporation. – A nonprofit described in section 501(c)(3) of 35
the Code that (i) is exempt from federal income taxation under section 501(a) 36
of the Code , (ii) is incorporated under a certificate of existence or admitted 37
under a certificate of authority under the North Carolina Nonprofit 38
Corporation Act as provided in Chapter 55A of the General Statutes, and (iii) 39
has day-to-day control of the operations of and decisions for the affordable 40
rental housing and has not delegated any decision-making authority other than 41
to a property manager serving under the direction of the eligible owner . The 42
term includes a single-purpose entity wholly owned by an eligible nonprofit 43
corporation. 44
(6) Eligible owner. – An eligible joint venture or an eligible nonprofit corporation. 45
(7) Income limit. – Eighty percent (80%) of area median income, adjusted for 46
family size, as set and published by the U.S. Department of Housing and 47
Urban Development as of January 1 of the year the application was submitted 48
under this section. 49
(8) Public agency. – Any of the following agencies, if overseeing a program listed 50
in sub-subdivision b. of subdivision (2) of subsection (c) of this section: 51
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House Bill 1042-Third Edition Page 3
a. A county government. 1
b. A municipal government. 2
c. A housing authority. 3
d. A State agency or department. 4
e. A federal agency or department. 5
(9) Qualifying unit. – An affordable rental housing unit for which both of the 6
following conditions are met: 7
a. The rent charged for an occupied unit or the published rent for a vacant 8
unit is at or below the rent limit. 9
b. It is occupied by, or set aside for, a tenant whose income is at or below 10
the income limit. 11
(10) Rent limit. – Rent, plus a utility allowance calculated in accordance with the 12
requirements of the North Carolina Housing Finance Agency , that does not 13
exceed thirty percent (30%) of the income limit. 14
(c) Requirements for Government -Supported Affordable Rental Housing. – Real and 15
personal property that provides government-supported affordable rental housing is exempt from 16
property taxation in any year in which all of the conditions listed in this subsection are met. For 17
purposes of this section, the term "government-supported" means that the property is financed as 18
described in sub-subdivision a. or b. of subdivision (2) of this subsection. The conditions are: 19
(1) The property is owned and operated by an eligible nonprofit corporation or an 20
eligible joint venture. 21
(2) Either of the following applies: 22
a. The eli gible owner is an eligible joint venture that receives 23
low-income housing credits pursuant to section 42 of the Code and 24
that is in compliance with any applicable regulatory requirements as 25
determined by the North Carolina Housing Finance Agency . 26
Ownership is determined as of the date the certificate of occupancy is 27
issued. 28
b. The eligible owner finances the acquisition, rehabilitation, 29
development, or operation of the property, or any combination thereof, 30
with tax-exempt mortgage revenue bonds , qualified 501(c)(3) bonds, 31
federal direct loans or grants, State loans or grants, or loans or grants 32
provided by a local jurisdiction in which the property is located. Such 33
government support must require the execution of a deed restriction or 34
an enforceable, verifiable regulatory agreement with a public agency 35
requiring that the property be operated as affordable rental housing in 36
accordance with this section for a period of at least 15 years from the 37
date the financing or financial assistance was initially provided. If the 38
public agency is a municipal government, a housing authority, or a 39
county government, the deed restrictions or regulatory agreement shall 40
be recorded with the register of deeds for each county in which the 41
property is located. The rights of a public agency under the deed 42
restrictions or reg ulatory agreement shall endure for the full term of 43
the agreement and are not defeasible without the written agreement of 44
the public agency. Government support does not include payments 45
made to the owner under the federal Housing Choice Voucher 46
Program or other local, State, or federal voucher program. 47
(d) Requirements for Non -Government-Supported Affordable Rental Housing. – Real 48
and personal property that provides non-government-supported affordable rental housing is 49
exempt from property taxation in any year in which all of the conditions listed in this subsection 50
are met. For purposes of this subsection, the term "non-government-supported" means that the 51
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property is not financed as described in sub-subdivision a. or b. of subdivision (2) of subsection 1
(c) of this section. The conditions are: 2
(1) The property is one hundred percent (100%) owned and operated by an 3
eligible nonprofit corporation that has owned and operated affordable rental 4
housing for at least five years. For purposes of this subdivision, the term "one 5
hundred percent (100%) owned" means (i) the eligible nonprofit corporation 6
is the sole record owner of the property or (ii) if title to the property is held by 7
a single-purpose entity, the eligible non profit corporation, either directly or 8
through one or more wholly owned disregarded entities, owns one hundred 9
percent (100%) of the legal and equitable ownership interest in the 10
title-holding enti ty, and no other person or entity holds any membership 11
interest, partnership interest, shareholder interest, economic interest, profits 12
interest, capital interest, beneficial interest, or o ther direct or indirect 13
ownership interest in that entity. 14
(2) The eligible nonprofit corporation, including any of its subsidiaries or 15
nonprofit affiliates, does not receive any funding or financial assistance, other 16
than grants, from a for-profit affiliate. 17
(3) The eligible nonprofit corporation does not lease the affordable rental housing 18
land or improvements to another entity. This subdivision does not apply to the 19
leasing of affordable rental housing units to tenants. 20
(4) The eligible nonprofit corporation has executed a deed restriction in favor of 21
the county and any municipality in which the property is located requiring that 22
the property be operated as affordable rental housing in accordance with this 23
section for a period of at least 15 years from the date of application. The 24
restriction must require that the ow ner provide the reporting required under 25
subsection (g) of this section annually to all grantees for the term of the deed 26
restriction. The deed restriction must state that any grantee, or its assigns, has 27
the right to enforce the terms of the restriction. 28
(e) Exemption Amount. – The exemption amount is the percentage of the appraised value 29
that is equal to the percentage of qualifying units unless the eligible owner meets the requirements 30
of the safe harbor in section 3 of Internal Revenue Service Rev. Proc. 96-32, in which case the 31
exemption amount is one hundred percent (100%) of the appraised value of the property. 32
(f) Application. – To be eligible for an exemption under this section, a n eligible owner 33
must submit an application in accordance with G.S. 105-282.1. The application form shall require 34
the applicant to provide the following information: 35
(1) Whether the applicant is applying for the exemption under subsection (c) or 36
subsection (d) of this section, along with documentation supporting that the 37
applicant is an eligible owner for the subsection under which it is applying; 38
evidence of government support pursuant to sub-subdivision a. or b. of 39
subdivision (2) of subsection (c) of this section , if applicable; and a copy of 40
the applicable deed restriction or regulatory agreement. 41
(2) Either of the following, as of the last day of the month immediately preceding 42
January 1 of the year of application: 43
a. If the applicant is applying for an exemption amount based on the 44
percentage of qualifying units, the percentage of qualifying units by 45
providing the following items: 46
1. The rent amount received by the owner for each qualifying unit 47
as evidenced by an anonymized rent roll. The applicant must 48
provide evidence of the published rent if a unit is vacant. 49
2. The total household income for each occupied qualifying unit 50
evidenced in an anonymized manner. 51
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b. If the applicant is applying for an exemption amount based on meeting 1
the requirements of the safe harbor in section 3 of Internal Revenue 2
Service Rev. Proc. 96 -32, evidence demonstrating the affordable 3
rental housing meets those requirements. 4
(3) Certification t hat the applicant is in compliance with any app licable deed 5
restriction or regulatory agreement and the requirements of this section. 6
(g) Compliance. – Pursuant to G.S. 105-282.1, an eligible owner must resubmit an 7
application annually with the information set forth in subsection (f) of this section to maintain 8
eligibility. For the first year that verified income eligibility is required, suc h household income 9
verification shall have occurred within the previous year. After the initial household incom e 10
verification, the household income provided for each qualifying unit must be verified at least 11
every two years. 12
(h) Future Site. – Real property held by an eligible owner as a future site for affordable 13
rental housing may be classified under this section for no more than five years. The taxes that 14
would otherwise be due on real property exempt under this subsection are a lien on the property 15
as provided in G.S. 105-355(a). The taxes shall be carried forward in the records of the taxing 16
unit as deferred taxes. The deferred taxes are due and payable in accordance with 17
G.S. 105-277.1F when the property loses its eligibility for deferral a s a result of a disqualifying 18
event. A disqualifying event occurs when the property is not used for affordable rental housing 19
that is in compliance with this section within five years from the first day of the fiscal year the 20
property was classified under this subsection. In addition to the provisions in G.S. 105-277.1F, 21
all liens arising under this sub section are extinguished when the property is used for affordable 22
rental housing within the time period allowed under this subsection. For purposes of this 23
subsection, the term "future site" means unimproved real property or improved real property that 24
is not occupied as of the date of the application for exemption under this section. 25
(i) Ineligible Property. – Property that has b een designated a special class of property 26
under G.S. 105-277.16 and assessed accordingly is not eligible for exemption under this section 27
unless a new Low -Income Housing Credit Allocation and Certification has been awarded for 28
newly financed improvements at the property and unless separately applied for and qualified 29
pursuant to subdivision (2) of subsection (c) of this section." 30
SECTION 3. G.S. 105-277.1F(a) reads as rewritten: 31
"(a) Scope. – This section applies to the following deferred tax programs: 32
(1) G.S. 105-275(12), real property owned by a nonprofit corporation held as a 33
protected natural area. 34
(1a) G.S. 105-275(29a), historic district property held as future site of historic 35
structure. 36
(2) G.S. 105-277.1B, the property tax homestead circuit breaker. 37
(2a) (See note for repeal) G.S. 105-277.1D, the inventory property tax deferral. 38
(3) G.S. 105-277.4(c), present-use value property. 39
(4) G.S. 105-277.14, working waterfront property. 40
(4a) G.S. 105-277.15, wildlife conservation land. 41
(4b) G.S. 105-277.15A, site infrastructure land. 42
(5) G.S. 105-278(b), historic property. 43
(6) G.S. 105-278.6(e), nonprofit property held as future site of low - or 44
moderate-income housing.housing, other than affordable rental housing as 45
defined under G.S. 105-278.7A. 46
(7) G.S. 105-278.7A(h), nonprofit property held as future site of affordable rental 47
housing." 48
SECTION 4. This act is effective for taxes imposed for taxable years beginning on 49
or after July 1, 2026, and, with respect to property held as a future site under G.S. 105-278.6(e) 50
or G.S. 105-278.7A(h), as enacted by this act, applies to real property classified under those 51
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provisions on or after that date. Notwithstanding G.S. 105-282.1(a)(2)a., an owner of low - or 1
moderate-income rental housing property that is exempt under G.S. 105-278.6(a)(8) as of the 2
effective date of this act must, by December 31, 2026, reapply for the exemption, providing the 3
assessor of the taxing unit with any necessary documentation for compliance consistent with this 4
act. Reapplication under this section is c onsidered an application under G.S. 105-278.7A(f), as 5
enacted by this act. Failure to meet this requirement within the time limit subjects the property 6
to discovery under G.S. 105-312. 7