Taxes, Real Property

Plain English Breakdown

The official source does not provide specific details about the publication of annual guidelines, only that capitalization rates must be published starting in 2026.

Tennessee Property Tax Assessment for Low-Income Housing

This bill sets rules for assessing taxes on multi-unit rental housing that receives government incentives based on low-income renter restrictions.

What This Bill Does

• Sets rules on how to value multi-unit rental housing with government restrictions, like low-income renter limits.
• Requires property tax assessors to use specific methods when valuing such properties, including considering actual income and expenses, using appraisal standards, and adjusting market values based on rents.
• Specifies that the capitalization rate must be higher for restricted-use housing compared to unrestricted housing.
• Requires owners of multi-unit rental housing to notify property assessors about changes or issues like government restrictions or foreclosures.

Who It Names or Affects

• Owners and managers of multi-unit rental housing in Tennessee that receive federal, state, or local incentives based on low-income renter restrictions.
• Property tax assessors who will use new methods to evaluate the value of such properties for taxation purposes.

Terms To Know

Multi-unit rental housing

Residential property with four or more individual dwelling units, excluding assisted living facilities and duplexes/single-family units unless they are commercial property.

Government restriction on use

A limitation on the use of a specified number of units in multi-unit rental housing that receive federal, state, or local incentives based on low-income renter restrictions.

Limits and Unknowns

• The bill does not specify how much tax revenue will be affected by these changes.
• It is unclear if all property owners will comply with the new notification requirements.

Official Summary Text

CAPITALIZATION RATE FOR MULTI-UNIT RENTAL HOUSING

For
residential property and projects developed on or after
January 1, 2026, this bill requires
multi-unit rental housing that is subject to government restriction on use
to
be assessed in a manner that
is consistent with
all of
the following methods:



Applying an annual net operating income approach to value that uses actual income and stabilized operating expenses that are based on the actual history of the property, when available, and a capitalization rate
.



Using a methodology to project income, expenses, and a capitalization rate that is consistent with the Uniform Standards of Professional Appraisal Practice
.



Adjusting the unrestricted market value of the multi-unit rental housing, computed without regard to a government restriction on use applicable to the multi-unit rental housing, based on the ratio of the average annual rent of those units of the property that are subject to government restriction on use to the average annual rent of comparable multi-unit rental housing that is not subject to government restriction on use
.



Excluding the amount of low-income housing tax credits received under
federal law
, or from a state or federal program in determining the value attributable to the multi-unit rental housing.
As used in this provision,
"
l
ow-income" means earning at or below 80
%
of the area median income as defined by the United States department of housing and urban development for the location of the multi-unit rental housing
.

As used in this
bill,
"
m
ulti-unit rental housing"
m
eans residential property or a project consisting of four or more individual dwelling units
and does not
include

(i)
a
ssisted living facilities or (ii)
d
uplexes or single-family units unless they are classified as commer
cial property or included as part of a larger property that is subject to government restriction on use.

This bill requires the
capitalization rate projected pursuant to
this bill to
be:



Based on the risks associated with multi-unit rental housing subject to government restriction on use, including diminished ownership control; income generating potential; liquidity; the condition of the property; the class of the property; and the property's location and size
.



Equal to or greater than the capitalization rate used for valuing multi-unit rental housing that is not subject to government restriction on use
.



In the range of 50 to 150 basis points above the most recent quarterly survey of the national average capitalization rates of multifamily properties published by realtyrates.com or a successor organization as determined by the division of property assessments in consultation with the Tennessee housing development agency.

Beginning with tax year 2026 and each tax year thereafter,
this bill
requires
the division of property assessments
to
publish the capitalization rate range for property assessors to use for that tax year on its website as soon as practicable after the rates become available.

REQUIRED NOTIFICATION FROM THE OWNER

This bill
requires the
owner of multi-unit rental housing
to p
romptly notify the property assessor if
any of the following circumstances exist:



The property is subject to government restriction on use, and if so, whether the owner requests that the property be classified as multi-unit rental housing subject to government restriction on use
.



The property ceases to be subject to government restriction on use, and if so, whether the owner of the property requests that the property's classification as multi-unit rental housing subject to government restriction on use be withdrawn
.



A foreclosure action has been brought upon the property
.

This bill also requires the
owner of multi-unit rental housing
to f
ile with the property assessor, on a form prescribed by the stat
e board of equalization, the information necessary for the multi-unit rental housing to be assessed based on the methods described in
this bill. Such
notification must be in writing and submitted to the property assessor on or before December 31 of
each
y
ear in which the applicable circumstance
s

listed above
occurred.

If the owner fails to submit
such
notification, then the owner is liable for any delinquent property taxes, including interest and penalty, assessed on the property.

Current Bill Text

SENATE BILL 539
By Stevens

HOUSE BILL 753
By Faison

HB0753
001305
- 1 -
AN ACT to amend Tennessee Code Annotated, Title 7;
Title 13; Title 48; Title 49; Title 67 and Title 68,
relative to low-income housing.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Title 67, Chapter 5, Part 6, is amended by
adding the following as a new section:
67-5-608.
(a) Notwithstanding another law to the contrary, multi-unit rental housing that is
subject to government restriction on use must be assessed in a manner that is
consistent with the following methods:
(1) Applying an annual net operating income approach to value that uses
actual income and stabilized operating expenses that are based on the actual
history of the property, when available, and a capitalization rate;
(2) Using a methodology to project income, expenses, and a
capitalization rate that is consistent with the Uniform Standards of Professional
Appraisal Practice;
(3) Adjusting the unrestricted market value of the multi-unit rental
housing, computed without regard to a government restriction on use applicable
to the multi-unit rental housing, based on the ratio of the average annual rent of
those units of the property that are subject to government restriction on use to
the average annual rent of comparable multi-unit rental housing that is not
subject to government restriction on use; and

- 2 - 001305

(4) Excluding the amount of low-income housing tax credits received
under Section 42 of the Internal Revenue Code of 1986 (26 U.S.C. § 42), or from
a state or federal program in determining the value attributable to the multi-unit
rental housing.
(b) The capitalization rate projected pursuant to subsection (a) must be:
(1) Based on the risks associated with multi-unit rental housing subject to
government restriction on use, including diminished ownership control; income
generating potential; liquidity; the condition of the property; the class of the
property; and the property's location and size;
(2) Equal to or greater than the capitalization rate used for valuing multi-
unit rental housing that is not subject to government restriction on use; and
(3) In the range of fifty (50) to one hundred fifty (150) basis points above
the most recent quarterly survey of the national average capitalization rates of
multifamily properties published by realtyrates.com or a successor organization
as determined by the division of property assessments in consultation with the
Tennessee housing development agency.
(c) Beginning with tax year 2026 and each tax year thereafter, the division of
property assessments shall publish the capitalization rate range for property assessors
to use for that tax year on its website as soon as practicable after the rates become
available.
(d)
(1) The owner of multi-unit rental housing shall:
(A) Promptly notify the property assessor if:
(i) The property is subject to government restriction on
use, and if so, whether the owner requests that the property be

- 3 - 001305

classified as multi-unit rental housing subject to government
restriction on use;
(ii) The property ceases to be subject to government
restriction on use, and if so, whether the owner of the property
requests that the property's classification as multi-unit rental
housing subject to government restriction on use be withdrawn; or
(iii) A foreclosure action has been brought upon the
property; and
(B) File with the property assessor, on a form prescribed by the
state board of equalization, the information necessary for the multi-unit
rental housing to be assessed based on the methods described in
subsection (a).
(2) The notification required by subdivision (d)(1)(A) must be in writing
and submitted to the property assessor on or before December 31 of the
calendar year in which the applicable circumstance as listed in subdivisions
(d)(1)(A)(i)-(iii) occurred.
(3) If the owner fails to submit the notification pursuant to subdivision
(d)(1)(A), then the owner is liable for any delinquent property taxes, including
interest and penalty, assessed on the property.
(e) As used in this section:
(1) "Government restriction on use" means a limitation on the use of a
specified amount of the individual dwelling units of multi-unit rental housing that
receive a federal, state, or local incentive based on low-income renter
restrictions, including the following government incentives:

- 4 - 001305

(A) A low-income housing tax credit under Section 42 of the
Internal Revenue Code of 1986 (26 U.S.C. § 42);
(B) Financing derived from exempt facility bonds for qualified
residential rental projects under Section 142 of the Internal Revenue
Code of 1986 (26 U.S.C. § 142);
(C) A low-interest loan under Section 235 or 236 of the National
Housing Act (42 U.S.C. § 3538) or Section 515 of the Housing Act of
1949 (42 U.S.C. § 1485);
(D) A rent subsidy;
(E) A guaranteed loan;
(F) A grant;
(G) A guarantee; or
(H) An agreement entered into for payments in lieu of ad valorem
taxes;
(2) "Low-income" means earning at or below eighty percent (80%) of the
area median income as defined by the United States department of housing and
urban development for the location of the multi-unit rental housing; and
(3) "Multi-unit rental housing":
(A) Means residential property or a project consisting of four (4)
or more individual dwelling units; and
(B) Does not include:
(i) Assisted living facilities; or
(ii) Duplexes or single-family units unless they are
classified as commercial property or included as part of a larger
property that is subject to government restriction on use.

- 5 - 001305

SECTION 2. For purposes of publishing the capitalization rate range and promulgating
application forms and rules, this act takes effect upon becoming a law, the public welfare
requiring it. For all other purposes, this act takes effect January 1, 2026, the public welfare
requiring it, and applies to residential property and projects developed on or after such date.