How property tax changes are reshaping multifamily valuations in the Carolinas

Property taxes are a fundamental component of a multifamily property's operating expenses, making them a key consideration in valuation and appraisal. When tax liabilities change, they can influence net operating income (NOI), underwriting assumptions, and ultimately, property value.

Recent legislative activity in North Carolina and South Carolina has focused on affordable housing property tax exemptions involving nonprofit ownership structures, particularly partnerships between for-profit multifamily owners and nonprofit entities. While the proposed changes primarily address exemption eligibility and compliance, they also have broader implications for how appraisers and market participants evaluate multifamily assets.

Why this matters for valuation

Although each state is taking a different legislative approach, both are moving toward property tax exemptions that more closely reflect nonprofit ownership, control, and affordability commitments. As these proposals evolve, property tax assumptions may require closer scrutiny during valuation and appraisal assignments, particularly for properties that rely on nonprofit partnership structures.

North Carolina: Clarifying nonprofit affordable housing exemptions

Background

North Carolina has experienced significant debate over a provision allowing qualifying nonprofit-owned low- and moderate-income housing to receive property tax exemptions. Critics argue that some market-rate apartment owners have used ownership structures in which a nonprofit holds a small ownership interest while the for-profit partner receives the majority of the tax benefit.

HB 1042: Affordable Housing Exemption Modifications

North Carolina lawmakers introduced HB 1042 to revise the state's nonprofit affordable housing exemption. The legislation seeks to:

• Clarify eligibility requirements
• Tighten exemption standards
• Expand reporting and compliance requirements
• Better define when affordable housing properties qualify for exemption

Legislators have also discussed limiting exemptions to properties that are 100 percent nonprofit-owned or joint ventures receiving governmental affordable housing financing support.

Under proposals currently being debated, qualifying properties could receive a full exemption if affordability and ownership requirements are satisfied, or a partial exemption based on the percentage of affordable units.

The valuation perspective

Because property taxes directly affect operating expenses, changes to exemption eligibility could influence projected NOI and valuation assumptions. Properties that previously relied on nonprofit partnership structures to obtain full exemptions may require closer review if those exemptions become more limited. Appraisers may also need to consider increased documentation requirements and the potential for higher recurring operating expenses when evaluating affected assets.

South Carolina: Shifting toward ownership-based exemptions

South Carolina's pending legislation, S.125/H.4475 and related amendments, represents a significant change in how affordable housing property tax exemptions would be calculated.

Historically, qualifying affordable housing properties could receive a full property tax exemption even when a nonprofit organization held only a minority ownership interest.

Key provisions

The proposed legislation includes several notable changes:

• Freeze period: The South Carolina Department of Revenue (SCDOR) cannot grant final approval for qualifying (B)(11)(e) exemption applications filed between June 30, 2026, and June 30, 2027.
• Applications held in abeyance: Rather than being denied, affected applications will be evaluated under the law in effect after the freeze expires. Applications submitted by qualifying nonprofit organizations remain unaffected.
• Legislative focus: The proposal targets hybrid ownership structures involving nonprofit and for-profit partnerships that lawmakers believe have expanded beyond the exemption's original intent.

Proposed framework

Under the proposal, property tax exemptions would generally be proportional to the nonprofit organization's ownership interest.

Projects could still qualify for a full exemption if the nonprofit owns more than 50 percent of the property or all units serve qualifying low-income residents under IRS Revenue Procedure 96-32.

Additional compliance requirements would include:

• Annual certification filings
• Ownership disclosures
• Rent roll documentation
• Department of Revenue verification procedures

The valuation perspective

The proposed shift toward ownership-based exemptions places greater emphasis on ownership structure when evaluating future property tax liabilities. For appraisers, developers, and property owners, changes in exemption eligibility could affect projected operating expenses and cash flow assumptions, particularly for mixed-ownership ventures that have historically benefited from broader exemptions.

Comparing the approaches

Although North Carolina and South Carolina are pursuing different legislative paths, both states are moving toward a more structured approach to affordable housing property tax exemptions.

North Carolina

• Focused on closing perceived loopholes
• Examining whether nonprofit ownership requirements should be strengthened
• Emphasizing the preservation of local government tax revenue

South Carolina

• Retaining exemptions while tying them more directly to economic ownership
• Establishing a clearer formula-based framework
• Affecting joint ventures in which nonprofit organizations hold minority ownership interests

Key valuation considerations

For developers, owners, lenders, and valuation professionals active in the Carolinas, these legislative proposals highlight the importance of carefully evaluating property tax assumptions during underwriting and appraisal.

As exemption requirements become more closely aligned with nonprofit ownership, control, and affordability commitments, ownership structure may play a larger role in determining future operating expenses. That, in turn, can influence projected NOI and value conclusions under the income approach.

While the legislation continues to evolve, appraisers and market participants should closely monitor these developments and assess how changes in exemption eligibility could affect valuation assumptions for both existing assets and future acquisitions.

Walker & Dunlop's valuation professionals help clients navigate evolving market conditions and complex valuation challenges. Whether you're evaluating an acquisition, underwriting a development, or assessing the impact of changing property tax legislation, our team provides independent valuation and advisory services to support informed decision-making. Connect with our Apprise team to learn more.

_{Disclaimer: This article is provided for informational purposes only and does not constitute legal or tax advice. The legislative proposals discussed are subject to change as they move through the legislative process. Property owners, investors, and other stakeholders should consult qualified legal and tax advisors regarding the application of current law to their specific circumstances.}