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

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

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

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.

The 2024 Legislature passed Senate Bill (SB) 6013, which took effect June 6, 2024, 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 unit be 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 for life or 99 years to the owner of the associated dwelling unit.

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:

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:

(i) Operated by a nonprofit entity.

(ii) Receiving financial support from the United States Department of Agriculture’s Mutual Self-Help Housing Technical Assistance Grant Program or its successor program.

What the exemption does and when does it expire?

The law provides an exemption from real property tax for a period 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.
• 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.
• 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.
• The date the property is no longer held as required.

Three-year extension available

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.

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.

Exemption timeline

Important: If an application (initial or extension) is filed after March 31, late filing fees will apply.

Applications seeking a retroactive exemption for the initial seven-year period (initial application) will be accepted up to a maximum of three years from the date taxes were due on the property. However, the department will NOT accept applications for the initial seven-year exemption period after Dec. 31, 2027.

Applications seeking a three-year extension will NOT be accepted after Dec. 31 of the seventh exempt tax year and no later than Dec. 31, 2034.

*Aug. 6, 2018, is the “no late fee” filing deadline for applications concerning land intended for lease.

**Sept. 26, 2019, is the “no late fee” filing deadline for applications concerning qualified cooperative associations.

***Sept. 6, 2024, is the “no late fee” filing deadline for applications concerning mutual self-help programs.

Property eligible for exemption

Property that is exclusively 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 described in RCW 84.36.800 that is exempt from federal income tax under IRS code 501(c)(3) must own the property.
• A qualified cooperative association formed under chapter 23.86 or 24.06.

How to apply for the exemption?

To receive this exemption, the nonprofit entity or qualified cooperative association must complete and file an application with the department. The application is available at dor.wa.gov. To find the form, enter form number REV 63 0001 in the search box. The application contains additional information and complete filing instructions.

Application filing deadline

The deadline for applying is March 31 annually. Applications filed after March 31 are subject to a late filing fee. However, because of the timing of the legislation, the first-year filing deadline after the effective date of the applicable legislation listed below will be different:

• SSB 6211: Land owned - applications must be postmarked on or before July 1, 2016.
• ESSB 5143: Land leased - applications must be postmarked on or before Aug. 6, 2018.
• ESHB 1107: Qualified cooperative association - applications must be postmarked on or before Sept. 26, 2019.
• SB 6013: Mutual self-help housing – applications must be postmarked on or before Sept. 6, 2024.

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 the Department of Revenue will collect data.

• Annual financial statement: The nonprofit entity or qualified cooperative association must provide an annual financial statement to JLARC for each year the owner 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 for the calendar year is due April 30, following the year in which the owner was eligible to claim exemption. For example: If your exemption begins with taxes due and payable in 2025 then financial statements for calendar year 2025 are due by April 30, 2026.
• 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 owner claims exemption. For example: if you are applying for exemption beginning with taxes due and payable in 2025, provide financial statements for calendar year 2023 and 2024 by April 30, 2026.

Applicants 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.

If you have questions or need additional information about the financial statement requirement, please call JLARC at 360-786-5171.

Ongoing reporting 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 form REV 63 0033.

The qualified cooperative association must immediately notify the department:

• When any portion of the exempt real property becomes occupied or when it executes the land lease.
• 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.

Disqualification from exemption

A property is disqualified from the exemption when:

• The nonprofit entity has not transferred title of the property to a low-income household or if a qualified cooperative association has not transferred either a single-family dwelling unit or any other portion of the property within one of the following:
  • Seven years of the exemption effective date.
  • Ten years of the effective date if a three-year extension was claimed.
• The nonprofit entity or qualified cooperative association has converted the use of the property to a purpose other than the purpose for which the exemption was granted.
• The nonprofit entity transfers the property to anyone other than a low-income household. However, the exemption does not expire as a consequence of the real property being transferred by one nonprofit entity to another nonprofit entity or to a qualified cooperative association so long as the transferee timely applies to the department and is approved for a continuation of the exemption.

Penalty

If the department finds the property disqualified from exemption, we will notify the county assessor to return the property to the tax roll. The assessor will remove the exemption as of the date it was granted. All taxes previously exempted will become due and payable, plus interest, calculated in the same way as delinquent property taxes.

The additional tax and interest become a lien on the property. The lien has priority over any other liens or obligations. The county auditor will not accept an instrument of conveyance unless the lien is paid.

Question & Answers

Q: I missed the July 1, 2016, filing deadline. Can I still receive the exemption beginning with taxes due and payable in 2017?

A: Yes, but only for property owned by a nonprofit entity for the purpose of developing or redeveloping one or more residences to low-income households and for the land that is intended to be sold. Exemptions for such property with land intended for lease begins with taxes due and payable in 2019. For qualified cooperative associations, the exemption will begin with taxes due and payable in 2020.

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 (2016 and forward for this example)
• 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 or qualified cooperative association owns land for the purpose of building a residence which will be sold to a low-income owner. However, the company will lease the land for life to a low-income owner of a residence. When is this land eligible for exemption?

A: The exemption provided under ESSB 5143 for land held for lease for life or 99 years becomes effective for taxes due and payable in 2019. The exemption provided under ESHB 1107 for qualified cooperative association becomes effective for taxes due and payable in 2020.

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 disqualifying 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.

Questions?

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