North Carolina Property Tax Reform: What HB 1042 Does to the Affordable Housing Exemption

By Wesley Fricks

Property taxes are on the agenda in North Carolina in many ways.

The previous article in this series looked at two bills aimed at reining in how counties grow tax revenue: SB 889, the reappraisal moratorium, and HB 1089, the constitutional levy limit. A third bill comes at the same money question but from the other direction.

House Bill 1042 would narrow a property tax exemption that has reportedly taken billions of dollars in multifamily value off North Carolina tax rolls, and Wake County is at the center of it. Most of the press coverage has framed it as a loophole story. A follow-up piece will explore the cost framing — how much does it actually cost to preserve affordable housing, and how does the exemption compare to new construction.

How This Affordable Housing Exemption Works

State law exempts property used for affordable housing by a nonprofit from property taxes. A 2013 ruling by the North Carolina Court of Appeals, known as the Blue Ridge Housing decision, held that a property qualifies even when a nonprofit owns as little as 0.1 percent of it. That ruling opened a structure where for-profit owners can hand a tiny stake to a nonprofit partner, qualify the entire property for full exemption, and operate it as before. The qualifying condition is that rents stay at or below 80 percent of area median income. In Wake County, where AMI is high, that ceiling sits above what older Class B and C apartments charge. The structure does not push rents down. It caps how high they can run. 

That distinction matters because it frames the real decision an investor faces when acquiring an older Class B or C property. One path is a conventional value-add: renovate units, upgrade finishes, and push rents higher. The other is to place the property in the exemption structure, maintain the current level of service, and forgo the rent increases. The tax abatement offsets the revenue the owner leaves on the table, and the property stays in service as naturally occurring affordable housing. Without that offset, the economic logic tilts toward renovation and rent growth. 

In Wake County, the exemption has scaled quickly. Sixty-six properties qualified in 2020. By 2025, the number was 137, representing roughly $11.4 million in foregone county tax revenue that year.

What House Bill 1042 Does

HB 1042, filed April 23 by Rep. Erin Paré (R-Wake), with Reps. Howard, Setzer, and Schietzelt as co-sponsors, restructures the existing exemption. The second-edition bill text creates two distinct paths to exemption. The first path covers government-supported affordable housing, deals financed by LIHTC equity, tax-exempt mortgage revenue bonds, qualified 501(c)(3) bonds, or federal, state, or local loans and grants, provided ownership is structured as an eligible joint venture or nonprofit and the property is bound by a 15-year affordability deed restriction.  

The second path covers non-government-supported deals, which qualify only if the property is 100 percent owned and operated by an eligible nonprofit that has owned and operated affordable rental housing for at least five years and the property is bound by a 15-year deed restriction. The 0.1 percent nonprofit-stake structure that the Blue Ridge ruling enabled would no longer qualify under either path. The bill caps rent at 30 percent of the income limit (80 percent of area median income) and replaces the all-or-nothing exemption with a sliding scale based on the share of units that meet the rent-and-income test. Currently exempted properties must reapply under the new framework by December 31, 2026. 

The bill is moving. House Finance gave it a favorable report on May 12, and it was re-referred to the House Rules Committee. Tracking is available through the NCGA bill lookup. The NCGA Fiscal Research Division released its fiscal note on May 12, estimating the bill would generate roughly $22 million in additional local revenue annually beginning FY 2027-28, growing to $32.6 million by FY 2030-31. The estimate assumes nearly all current exempt recipients will not meet the new requirements. Ten counties account for nearly 80 percent of the property excluded under the current statute, all in more populated parts of the state. The same fiscal note documents how quickly the exemption has scaled: excluded property values grew 38 percent annually from FY 2022-23 to FY 2024-25, with a 54 percent year-over-year jump in the most recent year. 

The affordable housing sector reads the bill as a property tax recovery measure and agrees that a meaningful share of currently exempt properties, up to 50,000 units, are unlikely to qualify under the new framework as written.  

The ownership structures behind the most-cited examples in the press are not the same as the structures behind LIHTC-financed developments. The bill as written may not distinguish between them cleanly. That is what the next round of committee work will determine.

What This Means for Multifamily Investors

For owners currently operating under the Blue Ridge structure, the question is whether HB 1042 passes and what it looks like if it does. The bill has cleared House Finance and is heading to Rules. The ownership tests, the rent-and-income thresholds, the sliding-scale mechanics, and the December 31, 2026 reapplication deadline could all change as the bill moves. For buyers underwriting acquisitions in Wake County and other markets where the exemption has been heavily used, the tax line is the variable that just got harder to model. The seller's current bill reflects the existing framework. The buyer's bill depends on what the legislature ultimately passes. 

For owners of comparable older properties that did not use the structure, the competitive landscape depends on the same question. A property that has been competing against an exempted comp has been at a structural disadvantage. If the comp loses its exemption, that gap compresses. 

If you own, operate, or are underwriting multifamily in Wake County or other markets where the exemption has been concentrated, this is worth a conversation.

Contact

Wesley Fricks

[email protected]
(919) 746-9909