2023 Texas Statutes › Tax Code › Title 1 - Property Tax Code › Subtitle C - Taxable Property and Exemptions › Chapter 11 - Taxable Property and Exemptions › Subchapter B. Exemptions › Section 11.1825. Organizations Constructing or Rehabilitating Low-Income Housing: Property Not Previously Exempt

Sec. 11.1825.  ORGANIZATIONS CONSTRUCTING OR REHABILITATING LOW-INCOME HOUSING:  PROPERTY NOT PREVIOUSLY EXEMPT.  (a)  An organization is entitled to an exemption from taxation of real property owned by the organization that the organization constructs or rehabilitates and uses to provide housing to individuals or families meeting the income eligibility requirements of this section.
(a-1)  An organization that leases land under a ground lease is entitled to an exemption from taxation of the improvements owned by the organization that the organization constructs or rehabilitates and uses to provide housing to individuals or families meeting the income eligibility requirements of this section.  An organization that leases land as described by this subsection is considered to be the owner of the land for purposes of the provisions of this section requiring that an organization own property for the purpose of constructing or rehabilitating a housing project on the property in order to receive an exemption for the property.  A reference in this section to acquiring property includes leasing the property as described by this subsection.  A reference in this section to an exemption from taxation or the appraisal of property means the improvements constructed or rehabilitated on the property if the property consists of land and improvements described by this subsection.
(b)  To receive an exemption under this section, an organization must meet the following requirements:
(1)  for at least the preceding three years, the organization:
(A)  has been exempt from federal income taxation under Section 501(a), Internal Revenue Code of 1986, as amended, by being listed as an exempt entity under Section 501(c)(3) of that code;
(B)  has met the requirements of a charitable organization provided by Sections 11.18(e) and (f);  and
(C)  has had as one of its purposes providing low-income housing;
(2)  a majority of the members of the board of directors of the organization have their principal place of residence in this state;
(3)  at least two of the positions on the board of directors of the organization must be reserved for and held by:
(A)  an individual of low income as defined by Section 2306.004, Government Code, whose principal place of residence is located in this state;
(B)  an individual whose residence is located in an economically disadvantaged census tract as defined by Section 783.009(b), Government Code, in this state;  or
(C)  a representative appointed by a neighborhood organization in this state that represents low-income households;  and
(4)  the organization must have a formal policy containing procedures for giving notice to and receiving advice from low-income households residing in the county in which a housing project is located regarding the design, siting, development, and management of affordable housing projects.
(c)  Notwithstanding Subsection (b), an owner of real property that is not an organization described by that subsection is entitled to an exemption from taxation of property under this section if the property otherwise qualifies for the exemption and the owner is:
(1)  a limited partnership of which an organization that meets the requirements of Subsection (b) controls 100 percent of the general partner interest;  or
(2)  an entity the parent of which is an organization that meets the requirements of Subsection (b).
(d)  If the owner of the property is an entity described by Subsection (c), the entity must:
(1)  be organized under the laws of this state;  and
(2)  have its principal place of business in this state.
(e)  A reference in this section to an organization includes an entity described by Subsection (c).
(f)  For property to be exempt under this section, the organization must own the property for the purpose of constructing or rehabilitating a housing project on the property and:
(1)  renting the housing, regardless of whether the housing project consists of multifamily or single-family dwellings, to individuals or families whose median income is not more than 60 percent of the greater of:
(A)  the area median family income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or
(B)  the statewide area median family income, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or
(2)  selling single-family dwellings to individuals or families whose median income is not more than the greater of:
(A)  the area median family income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or
(B)  the statewide area median family income, as adjusted for family size and as established by the United States Department of Housing and Urban Development.
(g)  Property may not receive an exemption under this section unless at least 50 percent of the total square footage of the dwelling units in the housing project is reserved for individuals or families described by Subsection (f).
(h)  The annual total of the monthly rent charged or to be charged for each dwelling unit in the project reserved for an individual or family described by Subsection (f) may not exceed 30 percent of the area median family income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development.
(i)  Property owned for the purpose of constructing a housing project on the property is exempt under this section only if:
(1)  the property is used to provide housing to individuals or families described by Subsection (f);  or
(2)  the housing project is under active construction or other physical preparation.
(j)  For purposes of Subsection (i)(2), a housing project is under physical preparation if the organization has engaged in architectural or engineering work, soil testing, land clearing activities, or site improvement work necessary for the construction of the project or has conducted an environmental or land use study relating to the construction of the project.
(k)  An organization may not receive an exemption for a housing project constructed by the organization if the construction of the project was completed before January 1, 2004.
(l)  If the property is owned for the purpose of rehabilitating a housing project on the property:
(1)  the original construction of the housing project must have been completed at least 10 years before the date the organization began actual rehabilitation of the project;
(2)  the person from whom the organization acquired the project must have owned the project for at least five years, if the organization is not the original owner of the project;
(3)  the organization must provide to the chief appraiser and, if the project was financed with bonds, the issuer of the bonds a written statement prepared by a certified public accountant stating that the organization has spent on rehabilitation costs at least the greater of $5,000 or the amount required by the financial lender for each dwelling unit in the project;  and
(4)  the organization must maintain a reserve fund for replacements:
(A)  in the amount required by the financial lender;  or
(B)  if the financial lender does not require a reserve fund for replacements, in an amount equal to $300 per unit per year.
(m)  Beginning with the 2005 tax year, the amount of the reserve required by Subsection (l)(4)(B) is increased by an annual cost-of-living adjustment determined in the manner provided by Section 1(f)(3), Internal Revenue Code of 1986, as amended, substituting "calendar year 2004" for the calendar year specified in Section 1(f)(3)(B) of that code.
(n)  A reserve must be established for each dwelling unit in the property, regardless of whether the unit is reserved for an individual or family described by Subsection (f).  The reserve must be maintained on a continuing basis, with withdrawals permitted:
(1)  only as authorized by the financial lender;  or
(2)  if the financial lender does not require a reserve fund for replacements, only to pay the cost of capital improvements needed for the property to maintain habitability under the Minimum Property Standards of the United States Department of Housing and Urban Development or the code of a municipality or county applicable to the property, whichever is more restrictive.
(o)  For purposes of Subsection (n)(2), "capital improvement" means a property improvement that has a depreciable life of at least five years under generally accepted accounting principles, excluding typical "make ready" expenses such as expenses for plasterboard repair, interior painting, or floor coverings.
(p)  If the organization acquires the property for the purpose of constructing or rehabilitating a housing project on the property, the organization must be renting or offering to rent the applicable square footage of dwelling units in the property to individuals or families described by Subsection (f) not later than the third anniversary of the date the organization acquires the property.
(p-1)  Notwithstanding the other provisions of this section, the transfer of property from an organization described by this section to a nonprofit organization that claims an exemption for the property under Section 11.181(a) is a proper use of and purpose for owning the property under this section and does not affect the eligibility of the property for an exemption under this section.
(q)  If property qualifies for an exemption under this section, the chief appraiser shall use the income method of appraisal as described by Section 23.012 to determine the appraised value of the property.  The chief appraiser shall use that method regardless of whether the chief appraiser considers that method to be the most appropriate method of appraising the property.  In appraising the property, the chief appraiser shall:
(1)  consider the restrictions provided by this section on the income of the individuals or families to whom the dwelling units of the housing project may be rented and the amount of rent that may be charged for purposes of computing the actual rental income from the property or projecting future rental income; and
(2)  use the same capitalization rate that the chief appraiser uses to appraise other rent-restricted properties.
(r)  Not later than January 31 of each year, the appraisal district shall give public notice in the manner determined by the district, including posting on the district's website if applicable, of the capitalization rate to be used in that year to appraise property receiving an exemption under this section.
(s)  Unless otherwise provided by the governing body of a taxing unit any part of which is located in a county with a population of at least 2.1 million under Subsection (x), for property described by Subsection (f)(1), the amount of the exemption under this section from taxation is 50 percent of the appraised value of the property.
(s-1)  For property described by Subsection (f)(2), the amount of the exemption under this section from taxation is 100 percent of the appraised value of the property.
(t)  Notwithstanding Section 11.43(c), an exemption under this section does not terminate because of a change in ownership of the property if:
(1)  the property is foreclosed on for any reason and, not later than the 30th day after the date of the foreclosure sale, the owner of the property submits to the chief appraiser evidence that the property is owned by:
(A)  an organization that meets the requirements of Subsection (b);  or
(B)  an entity that meets the requirements of Subsections (c) and (d);  or
(2)  in the case of property owned by an entity described by Subsections (c) and (d), the organization meeting the requirements of Subsection (b) that controls the general partner interest of or is the parent of the entity as described by Subsection (c) ceases to serve in that capacity and, not later than the 30th day after the date the cessation occurs, the owner of the property submits evidence to the chief appraiser that the organization has been succeeded in that capacity by another organization that meets the requirements of Subsection (b).
(u)  The chief appraiser may extend the deadline provided by Subsection (t)(1) or (2), as applicable, for good cause shown.
(v)  Notwithstanding any other provision of this section, an organization may not receive an exemption from taxation of property described by Subsection (f)(1) by a taxing unit any part of which is located in a county with a population of at least 2.1 million unless the exemption is approved by the governing body of the taxing unit in the manner provided by law for official action.
(w)  To receive an exemption under this section from taxation by a taxing unit for which the approval of the governing body of the taxing unit is required by Subsection (v), an organization must submit to the governing body of the taxing unit a written request for approval of the exemption from taxation of the property described in the request.
(x)  Not later than the 60th day after the date the governing body of the taxing unit receives a written request under Subsection (w) for an exemption under this section, the governing body shall:
(1)  approve the exemption in the amount provided by Subsection (s);
(2)  approve the exemption in a reasonable amount other than the amount provided by Subsection (s);  or
(3)  deny the exemption if the governing body determines that:
(A)  the taxing unit cannot afford the loss of ad valorem tax revenue that would result from approving the exemption;  or
(B)  additional housing for individuals or families meeting the income eligibility requirements of this section is not needed in the territory of the taxing unit.
(y)  Not later than the fifth day after the date the governing body of the taxing unit takes action under Subsection (x), the taxing unit shall issue a letter to the organization stating the governing body's action and, if the governing body denied the exemption, stating whether the denial was based on a determination under Subsection (x)(3)(A) or (B) and the basis for the determination.  The taxing unit shall send a copy of the letter by regular mail to the chief appraiser of each appraisal district that appraises the property for the taxing unit.  The governing body may charge the organization a fee not to exceed the administrative costs of processing the request of the organization, approving or denying the exemption, and issuing the letter required by this subsection.  If the chief appraiser determines that the property qualifies for an exemption under this section and the governing body of the taxing unit approves the exemption, the chief appraiser shall grant the exemption in the amount approved by the governing body.
Added by Acts 2003, 78th Leg., ch. 1156, Sec. 3, eff. Jan. 1, 2004.
Amended by:
Acts 2007, 80th Leg., R.S., Ch. 1264 (H.B. 3191), Sec. 1, eff. January 1, 2008.
Acts 2011, 82nd Leg., R.S., Ch. 1163 (H.B. 2702), Sec. 114, eff. September 1, 2011.
Acts 2011, 82nd Leg., R.S., Ch. 1309 (H.B. 3133), Sec. 2, eff. June 17, 2011.
Acts 2023, 88th Leg., R.S., Ch. 644 (H.B. 4559), Sec. 217, eff. September 1, 2023.
Acts 2023, 88th Leg., R.S., Ch. 886 (H.B. 4645), Sec. 1, eff. January 1, 2024.