Why It Matters
North Carolina is moving to close a significant tax loophole that has cost local governments tens of millions in property tax revenue over the past two years. The House Select Committee on Property Tax Reduction and Reform is considering a proposal that would tighten rules around tax exemptions for affordable housing, addressing what critics call a “rent-a-nonprofit structure” used by for-profit apartment developers. The change could restore critical funding for schools, libraries, public safety, and health services in North Carolina cities and counties.
What Happened
On March 18, 2026, the House Select Committee on Property Tax Reduction and Reform examined a sweeping proposal to reform North Carolina’s affordable housing tax exemption. The committee heard testimony from Trina Griffin, a staff attorney with the General Assembly’s Legislative Analysis Division, about how for-profit apartment complex owners have exploited current tax law by partnering with nonprofits to claim 100 percent property tax exemptions.
Under existing North Carolina law, nonprofits that provide housing for low- and moderate-income individuals automatically qualify for complete property tax exemptions with minimal statutory detail or oversight. For-profit developers have capitalized on this rule by transferring fractional ownership stakes to willing nonprofit partners, allowing them to claim the exemption while maintaining operational control.
Griffin explained that this arrangement functions as a “tax abatement strategy” without requiring developers to create new affordable housing or guarantee that properties remain affordable long-term. Local governments have seen a dramatic increase in the use of this exemption over the past two years, particularly among for-profits acquiring existing properties that are already affordable.
The proposed revision would tie property tax exemption eligibility to whether a property is financed with government funds, such as the Low-Income Housing Tax Credit (LIHTC). Properties receiving LIHTC funding must meet strict rent and income restrictions for 15 years, providing the guardrails that current law lacks. Griffin stated that the revised statute would “ensure the tax benefit is afforded to those who provide long-term affordable housing, consistent with similar standards that are required for LIHTC projects.”
By the Numbers
The financial impact of the current loophole extends across North Carolina’s local governments. Over the past two years, cities and counties have experienced a measurable surge in exempt property claims from for-profit developers using the rent-a-nonprofit structure, though specific county-by-county revenue losses were not disclosed in committee testimony. The loophole has cost local governments tens of millions of dollars in foregone property tax revenue annually. Under LIHTC programs, which would serve as the model for reformed eligibility standards, property owners must maintain affordability requirements for 15 years, providing a defined compliance timeline that current law entirely lacks.
Zoom Out
Property tax reform related to housing has become a growing issue across multiple states as municipalities grapple with declining tax bases and nonprofit-for-profit partnerships in the housing sector. North Carolina’s approach of tying exemptions to federal financing programs aligns with strategies used in other states seeking to balance affordable housing development with local government revenue needs.
The use of Low-Income Housing Tax Credits as a benchmark for exemption eligibility reflects a national trend toward outcome-based accountability in housing incentives. Many states have tightened rules around tax-exempt housing to prevent similar loopholes, requiring demonstrable community benefit and long-term affordability guarantees rather than relying solely on nonprofit partnerships.
The proposed change addresses a broader national debate about whether tax incentives for affordable housing should prioritize revenue protection for municipalities or prioritize maximum developer flexibility. North Carolina’s committee appears to be seeking a middle ground through requiring government funding involvement rather than eliminating exemptions entirely.
What’s Next
The House Select Committee on Property Tax Reduction and Reform will continue deliberations on the proposed revised statute. If advanced from committee, the measure would require a full vote by the North Carolina House of Representatives. The proposal would then proceed through the Senate if approved, where it would face additional review and potential amendments.
Implementation of any approved changes would require updates to state revenue guidance and potential clarification through rules issued by the North Carolina Department of Revenue. Local governments would receive updated guidelines defining which properties qualify for exemptions under the new standards. The timeline for implementation and any grandfather provisions for existing exemptions have not been finalized.