Providing home ownership opportunities for low-income households - Legislative update

Intended audience: Nonprofit homeownership development organizations, community land trusts, qualified cooperative associations, mutual self-help housing organizations, county assessors, county auditors, and county treasurers. 

Update

Providing home ownership opportunities for low-income households. This Special Notice adds information regarding the reporting requirements for qualifying nonprofits, county assessors, treasurers, and auditors.

This special notice adds information to the previous Special Notices published on Nov. 21, 2016, June 7, 2018, July 29, 2019, and August 2, 2024.

Legislation

The 2016 Legislature passed Substitute Senate Bill (SSB) 6211, which took effect June 9, 2016, as RCW 84.36.049. This act provided a property tax exemption to real property owned by qualifying nonprofit housing developers who create ownership opportunities for low-income households. Specifically, this act exempts real property intended for development and sale of single-family residences to low-income households.  

The 2018 Legislature passed Engrossed Substitute Senate Bill (ESSB) 5143, which took effect on June 7, 2018, and expands RCW 84.36.049 to include land owned by a qualifying nonprofit housing developer intended for lease to the low-income household of a single-family dwelling unit located on the land. To qualify, the intended land lease must be for life or 99 years. The leasing provision pertains to land only, the title to the associated single-family dwelling must be in the name of the low-income household. This act also extended the exemption provided by RCW 84.36.049 through Dec. 31, 2037.  

The 2019 Legislature passed Engrossed Substitute House Bill (ESHB) 1107, which took effect July 28, 2019, and expands RCW 84.36.049 to include property owned by a qualified cooperative association for the purpose of developing or redeveloping one or more residences on the real property to be sold to low-income households, including land to be leased for at least 99 years.  The extension to include qualified cooperative associations expires Dec. 31, 2037.

The 2024 Legislature passed Senate Bill (SB) 6013, which took effect June 6, 2024 for taxes due and payable in 2025, and expands RCW 84.36.049 to include property owned by a nonprofit entity for the purpose of selling the real property to a low-income household to build, or have built, through a qualified mutual self-help housing program a residence on the real property.  The extension to the exemption provided in RCW 84.36.049, to include mutual self-help housing programs expires Dec. 31, 2037. 

Definitions

The following definitions apply:

Residence means a single-family dwelling unit whether such a unit is separate or part of a multiunit dwelling and the land on which a dwelling unit stands. NOTE: The land on which the dwelling unit stands includes land owned by the nonprofit which is intended for sale or lease to the owner of the associated dwelling unit for life or 99 years.

Financial statements means an audited annual financial statement and a completed United States Treasury Internal Revenue Service return form 990 for organizations exempt from income tax.

Low-income household means a single person, family, or unrelated persons living together whose adjusted income is less than 80% of the median family income, adjusted for family size, as most recently determined by the Federal Department of Housing and Urban Development for the county in which the property is located.

Nonprofit entity means a nonprofit as defined in RCW 84.36.800 that is exempt from federal income taxation under 26 U.S.C. Sec. 501(c)(3) of the federal Internal Revenue Code of 1986, as amended.

Qualified cooperative association means a cooperative association formed under chapter 23.86 or 24.06 RCW that owns the real property for which an exemption is sought under this section and following the completion of the development or redevelopment of such real property:

• 60% or more of the residences are owned by low-income households.
• 80% or more of the square footage of any improvements to the real property are exclusively used or available for use by the owners of the residences.

Qualified mutual self-help housing program is a program dedicated to supporting the building of residences for low-income households in Washington through a mutual self-help construction method by which multiple low-income households use their own labor to reduce total construction costs of their residences. The program must also meet both of the following:

• Operated by a nonprofit entity, and
• Receiving financial support from the United States Department of Agriculture’s Mutual Self-Help Housing Technical Assistance Grant Program or its successor program.

Property eligible for exemption

RCW 84.36.049 provides an exemption from property tax for real property used to build or remodel one or more residences for sale to low-income households and owned by one of the following:

• A nonprofit entity as defined above.
• A qualified cooperative association as defined above.

Property not intended for sale, or leased for life or at least 99 years, to a low-income household is ineligible.

Qualifying homeownership development models

• Nonprofit Homeownership Development
  • Developing one or more residences on real property, both land and improvements to be sold to low-income households.
• Nonprofit Homeownership Development, Land Lease
  • Developing one or more residences on real property where the improvements are sold to low-income household, and the land is leased by the nonprofit to the homeowner for life or for 99 years.
• Qualified Cooperative Associations
  • Developing one or more residences on real property to be sold to low-income households, including land leased for life or for 99 years. At least 60% of the residences must be owned by low-income households, and at least 80% of the square footage of improvements must be used exclusively or made available to the owners of the residences.
• Mutual Self-Help Housing Programs
  • Providing low-income households an affordable path to home ownership by purchasing bare land from the nonprofit and building equity through constructing their own home on the property. The program must be operated by a nonprofit entity and receive financial support from the United States Department of Agriculture’s (USDA’s) Mutual Self-Help Housing Technical Assistance Grant Program or its successor program.

Application for initial exemption

To receive the exemption, the nonprofit entity or qualified cooperative association must complete and submit an Application for Property Tax Exemption (PDF).

The deadline for applying is March 31, annually. Applications filed after March 31 are subject to a late filing fee of $10 for each month past due. Applications for retroactive exemption for the initial seven-year period will be accepted up to a maximum of three years from the date taxes were due on the property but will be subject to the late filing fee. The department cannot accept applications for the initial seven-year exemption period after Dec. 31, 2026. WAC 458-16-266(4).

Expiration

The law provides an exemption from real property tax for a period of up to seven years. This exemption expires on or at the earlier of one of the following:

• The date on which the nonprofit entity transfers title to the residence and/or executes a lease of the land associated with the residence.  Both land and improvements become taxable upon conveyance of the residence.
• The date on which the nonprofit entity transfers title to the real property to the low-income household for the purposes of a mutual self-help housing program. Real property, including bare land or land with improvements, becomes taxable upon conveyance to a low-income household.
• The date on which the qualified cooperative association first conveys any single-family dwelling unit on the property or any part of the property and/or executes a lease of the land associated with the residence.
• The end of the seventh consecutive year, or if an extension was approved, the end of the tenth consecutive year for which exemption was granted.
• The date property is no longer held for the purpose for which the exemption was granted. Loan or rental of the property is not considered a qualifying exempt purpose.

The transfer of exempt property from one nonprofit entity to another nonprofit entity or to a qualified cooperative association is not a qualifying transfer. However, provided the new owner applies to the department within 60 days, the department may approve a continuation of the initial 7-year exemption or 10-year exemption if an extension has been filed.

Three year extension

A nonprofit entity may file for an extension of up to three years if it believes it will not transfer a single-family dwelling unit, or execute a lease of the land, by the end of the sixth year.

A qualified cooperative association may file for an extension of up to three years if it believes it will not transfer a single-family dwelling unit, or any other part of the property, by the end of the sixth year.

To apply for the extension the nonprofit entity or qualified cooperative association must complete both of the following:

• File an extension application (REV 64 0118) with the Department of Revenue (department) on or before March 31 of the sixth consecutive tax year.
• Provide a filing fee equal to the greater of $200 or one-tenth of 1% of the real market value of the property as of the most recent assessment date.

Example: Extension timeline

If the initial application is filed on or before:	The property is eligible for exemption of taxes due and payable in tax year(s):	If the extension application is filed on or before:	The property is eligible for extension of exemption of taxes due and payable in tax year(s):	Potential maximum # of years of exemption (including extension if applicable)
July 1, 2016	2017 - 2023	March 31, 2022	2024 - 2026	10
March 31, 2017	2018 - 2024	March 31, 2023	2025 - 2027	10
March 31, 2018	2019 - 2025	March 31, 2024	2026 - 2028	10
March 31, 2019	2020 - 2026	March 31, 2025	2027 - 2029	10
March 31, 2020	2021 - 2027	March 31, 2026	2028 - 2030	10
March 31, 2021	2022 - 2028	March 31, 2027	2029 - 2031	10
March 31, 2022	2023 - 2029	March 31, 2028	2030 - 2032	10
March 31, 2023	2024 - 2030	March 31, 2029	2031 - 2033	10
March 31, 2024 *	2025 - 2031	March 31, 2030	2032 - 2034	10
March 31, 2025	2026 - 2032	March 31, 2031	2033 - 2035	10
March 31, 2026	2027 - 2033	March 31, 2032	2034 - 2036	10
March 31, 2027	2028 - 2034	March 31, 2033	2035 – 2037	10

Notification requirements

The nonprofit entity must immediately notify the department when it sells or transfers the exempt real property, or when it executes the land lease by completing the Notice of Occupancy form (PDF).

The qualified cooperative association must immediately notify the department by completing the Notice of Occupancy form (PDF):

• When any portion of the exempt real property becomes occupied or when it executes the land lease, and
• Within one year of when all the exempt real property becomes occupied.

Unlike other property tax exemptions under chapter 84.36 RCW, the statute does not require an annual renewal to maintain this exemption.

Platting and segregation (subdividing)

The department must be notified when a parcel is platted, segregated, or other otherwise modified. Such changes may affect the property’s exemption status. Notification of parcel changes may be submitted to DORNonprofitExempt@DOR.WA.GOV. After receiving notification, the department will notify the county of any changes to the property’s exempt status.

Disqualification & tax collection

A property will be disqualified from the exemption if:

• It is used for any purpose other than that for which the exemption was granted,
• It is transferred to someone other than a low-income household, or
• It is not transferred to a low-income household within seven years of the exemption effective date, or within ten years if a three-year extension was approved.

When the department discovers a property that no longer qualifies for exemption, it will notify the county assessor. The assessor will remove the exemption and return the property to the tax roll, retroactive to the original exemption date.

Tax collection – Additional tax and interest

Once real property is disqualified from this exemption, all previously exempted taxes become due and payable, plus interest.  The county treasurer must:

• Calculate and collect additional tax equal to all taxes that would have been paid on the property had the exemption not been granted including interest.
• Interest is calculated using the same rate and method as for delinquent property taxes.
• Additional tax and interest are due within thirty days of the issue date on the treasurer's statement; and
• The additional tax is distributed to taxing districts in the same manner as current property taxes on the real property.

Conveyance – Lien on real property

If a nonprofit entity or qualified cooperative association sells or transfers the property to a non-qualifying household:

• Any unpaid additional tax and interest must be paid by the seller prior to conveyance.
• The county auditor may not accept an instrument of conveyance unless the additional tax and interest are paid in full.

A lien for additional tax and interest has priority over all other debts or obligations tied to the property and must be fully satisfied before the property can be conveyed.

Right to appeal

The nonprofit entity, qualified cooperative association, or new owner may appeal the assessed values used to calculate the additional tax. Appeals must be filed with the county board of equalization in accordance with the provisions of RCW 84.40.038.

Financial statements required for the Joint Legislative Audit and Review Committee 

In addition to the application, you must submit financial statements to the Joint Legislative Audit and Review Committee (JLARC). The Legislature intended this exemption to encourage and expand the ability of nonprofit housing developers to provide homeownership opportunities to low-income households. To measure the effectiveness of the exemption, the participating nonprofit entity or qualified cooperative association must provide both current and historical financial statements from which JLARC will collect data.

• Annual financial statement: The nonprofit entity or qualified cooperative association (beneficiary) must provide an annual financial statement to JLARC for each year the beneficiary claims exemption. This statement must include itemized information detailing all revenues and clearly delineate between those revenues dedicated to the development of affordable housing and all other activities.

The annual financial statement is due upon request by the committee, for the years that the exemption has been claimed.

• Historical financial statements: Nonprofit entities or qualified cooperative associations must provide equivalent data to JLARC for the two years immediately prior to the first year in which the beneficiary claims exemption. For example: If applying for exemption beginning with taxes due and payable in 2025, provide financial statements for calendar year 2023 and 2024 by April 30, 2026.

Beneficiaries can send financial statements and related information directly to JLARC at PO Box 40910, Olympia WA 98509 or by email at JLARC@leg.wa.gov.

For questions or additional information about the financial statement requirement, please call JLARC at 360-786-5171.

Question & answers

Q: I missed the March 31 filing deadline for initial exemption. Can I still receive the exemption?

A: Yes. The department will accept retroactive applications for previous years’ exemptions for a maximum of three years from the date taxes were due on the property if both:

• The applicant provides the department with acceptable proof that the property qualified for an exemption during the pertinent assessment years, and
• Pays the late filing fee.
  • A late filing fee of $10 per month or portion of a month will accrue from the application deadline through the application’s actual postmark/email date.

Q: Our nonprofit housing development company owns land for the purpose of selling the land to a low-income owner who enters into an agreement to build, or have built, through a qualified mutual self-help housing program a residence on the land. When is this land eligible for exemption?

A: The exemption provided under SB 6013 for land held for sale to a low-income person who enters into an agreement to build, or have built, a residence through a qualified mutual self-help housing program becomes effective for taxes due and payable in 2025.

Q: Can I loan or rent the property before it’s sold to a low-income household?

A: No. The statute does not allow for the loan or rental of the property while the property is in exempt status. Loan or rental activity is a disqualifying activity, and the exempt status will be removed.

Q: My nonprofit organization owns land intended to be developed into condominiums for sale to qualifying low-income families. Is this land eligible for this exemption?

A: Maybe. If the future qualifying low-income owner receives a proportionate undivided fee simple interest in the building and land, then the property is eligible for exemption. If the future low-income owner receives a proportional undivided interest in the building and a lease for life or 99 years in the associated land, then the property is eligible for exemption. Any portion of a condominium building not held for transfer or any portion of the land under the building not held for transfer or for lease for life/99 years is not eligible for this exemption. 

Q: My qualified cooperative association transferred a part of the property receiving exemption to a realty group. Is the rest of the property and the single-family dwelling on it still eligible for exemption?

A: No. Once your qualified cooperative association transfers any part of the property, all of the property, including the single-family dwelling, is no longer exempt.

Q: My organization needs to file a 3-year extension. The initial 7-year exemption was granted for two parcels, which has been segregated into ten separate parcels. Is the extension filing fee calculated based on the original two parcels or the current ten parcels?

A: The filing fee for extension is due based on the parcels initially granted exemption by the department. The filing fee is equal to the greater of two hundred dollars or one-tenth of one percent of the real market value of the property as of the most recent assessment date. Application for extension should include notification to the department of any newly created parcels.

Q: I missed the deadline to apply for the 3-year extension. Can I still apply for an extension?

A: No. The department cannot accept late applications for 3-year extension. If the extension deadline is missed, the exemption expires at the end of the seventh consecutive exempt tax year or when the property is transferred, whichever is first.

Questions

If you have questions or need additional information, please contact the Department of Revenue, Property Tax Division at 360-534-1400 or DORNonprofitExempt@DOR.WA.GOV.