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  5. Legislative Updates To The Administration Of The Multifamily Tax Exemption (MFTE)

Legislative updates to the administration of the Multifamily Tax Exemption (MFTE)

Issue Date

Intended audience: County assessors, local legislative authorities and program participants.

The 2025 Legislature passed two bills impacting the Multi-Family Tax Exemption (MFTE) in urban and transit areas, under Chapter 84.14 RCW. The effective date for these bills is July 25, 2025, except where otherwise noted.

3SHB 1491 – Promoting transit-oriented housing development

Third substitute house bill 1491 (3SHB 1491) amends RCW 84.14 adding a 20-year property tax exemption for property located fully or partially in a station area and meets the affordable housing requirements as described in RCW 84.14.

Transit-oriented housing development

  • 3SHB 1491 amends RCW 84.14.020 to add a 20-year property tax exemption for property located fully or partially in a station area and meets the (50-year) affordable housing or workforce housing requirements as described in RCW 84.14.

Definitions

This bill amends the definitions under RCW 84.14.010, including:

  • City is expanded to include a city or town with a “station area” for the purposes of this exemption.
  • Station area means either of the following:
    • A “bus station area,” defined as within a quarter-mile walking distance of a rapid transit bus stop as outlined in a transit development plan with Department of Commerce, which has an environmental determination consistent with 43.21C RCW, and features fixed transit assets that indicate permanent high-capacity service, like elevated platforms, enhanced stations, off-board fare collection, dedicated lanes, busways, or signal priority or a rail station area.
    • A “rail station area,” defined as any of the following:
      • In a city with a population above 15,000, within a half mile walking distance of a commuter rail stop.
      • In a city with a population of up to 15,000, within a quarter mile walking distance of a commuter rail stop.
      • Within a half mile of a light rail stop.
      • In Western Washington, within a half mile walking distance of a rail trolley stop.

Local governing authority – standards and guidelines

A new section is added to RCW 84.14 requiring a governing authority of a city with a station area to adopt and implement standards and guidelines when determining applications for exemption under RCW 84.14.060. The standards and guidelines must establish basic requirements for both new construction and rehabilitation and include:

  • Application process and procedures
  • Income and rent standards for affordable or workforce housing units that meet the requirements of 84.14 and 36.70A
  • Requirements that address demolition of existing structures and site utilization
  • Building requirements that comply with RCW 84.14 and RCW 36.70A

HB 1494 – Concerning the property tax exemptions for new and rehabilitated multiple-unit dwellings in urban centers

House Bill 1494 (HB1494) expands and modifies the property tax exemptions for new and rehabilitated multiple-unit dwellings in urban centers without extending the expiration date of the exemptions or expanding the exemptions to the conversions of market rate residential buildings into affordable housing.

Key updates include:

  • Requires covenant and deed restrictions to ensure housing affordability.
  • Allows for income growth for qualifying households in restricted units.
  • Updates several density and zoning restrictions.
  • Provides additional property tax exemption in transit areas.

Definitions

  • Affordable Housing is amended to mean residential housing with monthly costs, including utilities other than telephone, that do not exceed 30% of the monthly income of a low-income or moderate-income household.
  • RCW 84.14.020 now allows for income growth of a low-income or moderate-income household that initially qualifies for an income-restricted unit until their adjusted household income exceeds 150% of the established income limit.
  • A low-income or moderate-income household that initially qualifies for an income-restricted unit may now remain eligible as their income grows, until their adjusted household income exceeds 150% of the established income limit (RCW 84.14.020).

Notably, this bill removes the definition of “rural county”.

Covenants and deed restrictions

Covenant or deed restriction is required for 12-year exemption that ensures the affordability requirements and other conditions of the exemption are met for projects intended exclusively for owner occupancy and requires property owners located in an unincorporated area of a county to commit to renting or selling at least 20% of the multifamily housing units as affordable housing units to either low-income or moderate-income households, or both.

Density and zoning updates

HB 1494 updates the density and zoning requirements for new and rehabilitated multiple-unit dwellings in urban center, including:

  • City-designated residential targeted areas must be determined by a city to be in compliance with Anti-displacement requirements in RCW 36.70A.070(2).
  • Removing the city 65,000-population cap and adding a lower population limit of 15,000 residents for the 20-year exemption.
  • Removing the zoning requirement for cities with a population over 20,000 to eliminate the additional provision for an average minimum density of 25 dwelling units or more per gross acre.
  • Removing the requirement for designated residential target areas within unincorporated areas to be served by a sewer system and designated by the county prior to January 1, 2023.
  • Amending the transit criteria to .5 miles of bus corridor with service 10 times per day in each direction and clarifies the transit service is in service or is planned for service in a transit development plan, as required under RCW 35.58.2795.
  • Requires the governing authority to send notification of hearing, and any proposed changes, standards, guidelines, requirements or conditions under 84.14.021(5) and (6), to all taxing districts in the impacted target area.
  • The 8-year exemption is not available in counties seeking to promote transit supportive densities and efficient land use in an area located within a designated growth area and within certain transit areas, as described in RCW 84.14.040(1)(d)(ii).

City and county requirements and guidance for noncompliance

HB 1494 adds additional requirements and guidance for cities and counties for administration of the property tax exemptions for new and rehabilitated multiple-unit dwellings in urban centers.

  • Upon approval of the exemption, the city or county must submit a copy of the certificate to both the property owner and the county assessor.
  • Cities and counties issuing certificates of exemption must include in their annual reporting to the department of commerce, an analysis of affordable housing units produced, or to be produced, including unit size, number of bedrooms, income requirements, and how the units will support the existing and projected housing needs identified under RCW 36.70A.070(2)(a).
  • Cities and counties are no longer required to cancel the tax exemption for noncompliance. RCW 84.14.110 allows for cities and counties to:
    • Impose and collect a sliding scale penalty for noncompliance with the minimum number of units rented or for not properly screening tenants. Describes guidance for penalty calculation and requires that the exemption be cancelled if subsequent substantial noncompliance is discovered.
    • Implement a sliding fee penalty and assign the highest penalty to the owner of an owner-occupied unit who causes a project to be out of compliance and may assign a lesser, or no penalty, to the other owners. A city or county may cancel the exemption for the noncompliant unit only.

Questions?

Please visit our property tax page, call 360-534-1400, or contact your county assessor.