Legislative updates to the property tax assistance program for individuals expands to ADUs

Intended audience: County assessors, county treasurers, taxing districts, local governments, and program participants.

Beginning June 6, 2024, accessory dwelling units may be eligible for certain property tax assistance programs available to individuals. This change applies to property taxes collected in 2025 and after.

House Bill 2375 (HB 2375) amends the definition of residence, allowing the inclusion of an accessory dwelling unit (ADU) and adds a definition for ADUs. The changes result in a greater reduction of property taxes for the applicant because the value of the ADU is included in the reduced valuation for the program(s). 

The following programs are affected by these changes: 

• RCW 84.36.381 Property Tax Exemption for Senior Citizens and People with Disabilities.
• RCW 84.38.020 Property Tax Deferral for Senior Citizens and People with Disabilities.
• RCW 84.37.020 Property Tax Deferral for Homeowners with Limited Income.
• RCW 84.39.010 Property Tax Assistance Program for Widows or Widowers of Veterans.

Definitions

Accessory dwelling unit means a separate, autonomous residential dwelling unit that provides complete independent living facilities for one or more persons, and includes permanent provisions for living, sleeping, eating, cooking, and sanitation (RCW 84.36.383(1)).

Residence means a single-family dwelling unit, whether such unit be separate or part of a multiunit dwelling, may include one accessory dwelling unit and includes the land on which such dwellings stand not to exceed one acre, except that a residence includes additional property up to a total of five acres that comprises the residential parcel if this larger parcel size is required under land use regulations (RCW 84.36.383(13)).

Question & Answer (Q&A) scenarios/examples

Q: I have a single-family home and land receiving the exemption under RCW 84.36.381. I also have a second home on the parcel that is not currently receiving the exemption. Does the second home also qualify for the exemption as a result of the new legislative changes? If the second home qualifies for the exemption, how will this impact my frozen value?

A: It is possible that the second home could qualify for exemption. The definition of residence in RCW 84.36.383 states that a residence may include one accessory dwelling unit (ADU). If the second home meets the definition of an ADU, it could be included with the residence for purposes of the exemption. You will need to declare to the assessor that you have an ADU and want to include it in your exemption.

In most cases, a residence’s value is frozen as of January 1 of the assessment year that you first qualified for the exemption. The value of an ADU will be added to the frozen value of the residence as of January 1 of the assessment year that the ADU first qualifies.

Q: I have multiple structures on my property, how will the assessor determine which structure is the ADU?

A: Applications for exemption for tax year 2025 and beyond will have a section that allows you to declare your ADU and identify which structure it is. To be included for exemption, the structure must be located on the same parcel as your primary residence. If you are currently participating in the exemption program and would like to declare your ADU, please file a change of status form.

Q: I own a property that has a primary residence and a cabin. I live in the main home, and my granddaughter lives in the cabin while attending college. She does not pay rent but does contribute to some of my household expenses like groceries and utilities. Now that the cabin could qualify as an ADU and be included in the exemption program with the primary residence, how do I calculate my combined disposable income (CDI)?

A: CDI is the disposable income of the applicant, plus the disposable income of the applicant’s spouse or domestic partner, and the disposable income of each cotenant occupying the residence. If your granddaughter is a cotenant (someone who has ownership in the residence and lives there), then her disposable income would be included. If she does not have ownership interest in the residence, then her disposable income would not be included. However, any contribution she makes to household expenses, like groceries, utilities, etc., would be included in the CDI calculation.

Q: What if I rent out a portion of my home, an additional unit (i.e. duplex), or an ADU, will this qualify for the exemption?

A: Renting any portion of your residence (the main home, a portion of the main home, additional unit, or the ADU) could impact your eligibility for exemption.

Important to note:

Occupancy is one of the primary qualifications for the property tax relief programs. The property owner must occupy their residence for more than six months of each calendar year. The exemption applies only to areas of the property and residence that the owner occupies.

When a property owner enters into a rental or lease agreement where the tenant has exclusive rights and possession of a portion of the property (i.e. spare bedroom, garage apartment, daylight basement, duplex unit, cabin, etc.), then that portion cannot be considered occupied by the owner. This means that it does not meet the criteria for exemption and that portion must remain taxable.

However, this is dependent on if the portion is used regularly as a rental.

• Regularly, for the purpose of property tax relief programs, is more than six months per year. To calculate time, either consecutive months used or total days used are acceptable.
• Use refers to periods both where the property is actually occupied by a tenant or transient resident and publicly available for rent.

ADU example*

The property owner has a primary residence (main home) and a small cabin (ADU) on their property. The small cabin meets the definition of an ADU. Can it be included as part of the primary residence and qualify for property tax relief?

• Scenario A: The property owner lives in the main home and the ADU is vacant. 
  • Both dwelling units could qualify for property tax relief as the owner has exclusive rights and possession of both units.
• Scenario B: The property owner and extended family live in the main home and ADU. The extended family does not pay any rent.
  • Both dwelling units could qualify for property tax relief because the residence (main home and ADU) meets the definition of family dwelling unit found in WAC 458-16A-100 (18).
• Scenario C: The property owner lives in the main home and rents out the ADU for three months in the summertime. The remaining nine months of the year, the property owner has exclusive rights and possession of the ADU.
  • Both dwelling units could qualify for property tax relief. The owner has exclusive rights and possession of both units and the regular use limits of the ADU are not exceeded.
• Scenario D: The property owner lives in the main home and rents the ADU year-round.
  • Only the main home could qualify for property tax relief. The owner does not have exclusive rights and possession of the ADU, and the regular use limits are exceeded. In this scenario the ADU cannot qualify for the exemption.

*This example can apply to any separate, autonomous residential dwelling unit such as small cabin, detached garage apartment, duplex unit, additional unit in a condominium, etc.

Portion of main home example

The property owner has a primary residence (main home) with a spare bedroom they are considering renting.

• Scenario A: The property owner lives in the main home and rents out the spare bedroom for three months in the summertime. The remaining nine months of the year, the property owner has exclusive rights and possession of the room.
  • The entire main home can qualify, as the regular use limits have not been exceeded.
• Scenario B: The property owner lives in the main home and rents out the spare bedroom long-term to one tenant year-round.
  • The spare bedroom is exclusively occupied by the tenant and does not qualify for property tax relief. However, the remainder of the home can receive the benefit of the exemption.
• Scenario C: The property owner lives in the main home and has a spare bedroom available for short-term rent. It is listed on a vacation rental website all year long as available but is only sometimes occupied by renters.
  • None of the property qualifies for property tax relief.

In Scenario C above, the same space is rented as Scenario A & B, so why does none of the property qualify for property tax relief?

A qualifying residence must be a single-family unit of nontransient persons living as a single noncommercial housekeeping unit.

The following is the department’s interpretation of short-term and long-term rental:

• Short-term rental (transient) means rented/leased for a period of less than 30 days.
• Long-term rental (nontransient) means rented/leased for periods of 30 days or more.

When a property is regularly and routinely available to be rented to transient residents throughout the year, then it becomes a commercial property. Regularly operating a transient rental business with shared common areas that are indistinguishable from the single-family dwelling unit means the property would not qualify as a residence and is not eligible to receive an exemption.

Important to note: If any portion of the residence is rented to others, the rental income received will need to be included in the combined disposable income calculation.

Questions?

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