Client Alert: South Carolina Property Tax Exemption For Nonprofit Low-Income Housing: Critical Legislative Development

Key Points

• Pending South Carolina legislation would unexpectedly amend the nonprofit housing property tax exemption statute. On May 7, 2026, the South Carolina Senate amended H. 5006 to include changes to the nonprofit housing property tax exemption under S.C. Code § 12-37-220(B)(11)(e) (the “Exemption Statute”). The bill, as amended, passed the Senate 46-0 and is now before the House for consideration. With only a few days remaining in the legislative session, the outcome remains uncertain.
• The bill would tie the property tax exemption to nonprofit ownership share. If enacted, the available exemption amount would be proportionate to the nonprofit housing corporation’s percentage of direct or indirect ownership in the qualifying property, rather than the current system which provides an exemption equal to the entire value of the property regardless of the nonprofit’s ownership share.
• Existing exemptions and submitted exemption applications would not be affected. A grandfather provision would protect projects that submit an exemption application under the Exemption Statute prior to the Governor’s approval of the bill. The proportionate ownership rule would apply only to exemption applications for property tax years beginning after 2026.
• Two exceptions would preserve the full exemption. The exemption would remain 100% only if (i) the nonprofit’s direct or indirect ownership exceeds 50%, or (ii) all units in the property are devoted to residents qualifying as low income under Revenue Procedure 96-32 (≤80% AMI), regardless of unit mix.
• All projects, including those grandfathered, would face new annual certification requirements. The amendment also adds annual certification requirements, requiring the nonprofit housing corporation or its instrumentality to certify its ownership percentage and provide a current rent roll or other documentation of Revenue Procedure 96-32 compliance to SC Department of Revenue (“SCDOR”) each October.

How This Happened

South Carolina lawmakers have been considering legislation since early 2025 that would tie the statewide property tax exemption available for low-income housing owned or managed by a nonprofit to the nonprofit’s percentage interest in a qualifying property. S. 125 and H. 4475, which proposed these changes, had been stalled in the House Committee on Ways and Means and were not expected to advance during the 2026 legislative session.

That changed on May 7, 2026, when Senator Johnson proposed a floor amendment to H. 5006, the “State of South Carolina Small Business Tax Cut of 2026.” H. 5006 had passed the House 103-0 in February and had no connection to affordable housing. Senator Johnson’s amendment added the Exemption Statute language from S. 125 in its entirety, bypassing committee review. The amendment was adopted, and H. 5006, as amended, passed the Senate 46-0 the same day. With only a few days remaining in the legislative session, the bill is now before the House for consideration. The bill has not yet been enacted, and while the path forward remains uncertain, there appears to be at least some expectation that Senator Johnson's amendment may not survive in its current form.

Current Law

Under current law, the Exemption Statute exempts all property of nonprofit housing corporations or instrumentalities of these corporations when the property is devoted to providing housing to low or very low income residents, provided the project satisfies the safe harbor provisions of Revenue Procedure 96-32. The exemption applies to 100% of the property regardless of the nonprofit’s ownership percentage.

The Proposed Changes

H. 5006, as amended by the Senate, proposes a new subitem (e)(ii) that would provide “the exemption allowed by this subitem must be proportionate to the nonprofit housing corporation’s percentage of direct or indirect ownership in the qualifying property.”

In practical terms, a nonprofit owning 50% or less of a qualifying property would receive a tax exemption equal only to its ownership share, applied to exemption applications for property tax years beginning after 2026. A nonprofit holding a 0.5% interest, for example, would be entitled to exempt only 0.5% of the property’s value from taxation.

The bill provides two exceptions under which the full 100% exemption is preserved:

• The nonprofit’s direct or indirect ownership interest in the qualifying property exceeds 50%; or
• All units in the property are devoted to providing housing to residents who qualify as low income under Revenue Procedure 96-32 (≤80% AMI), regardless of unit mix.

Annual Certification Requirements

The bill, if enacted, would require the nonprofit housing corporation or its instrumentality to submit annual certifications to SCDOR by October 1 certifying its current ownership percentage and providing a current rent roll or other documentation evidencing compliance with the safe harbor provisions of Revenue Procedure 96-32. SCDOR would be required to notify the chief administrative officer of the county and any applicable municipality with jurisdiction over the exempt property.

Grandfather Provision

The bill expressly provides that the new proportionate ownership rule does not apply to any project that, prior to the Governor’s approval of the bill, had submitted an application or been approved for an exemption under the Exemption Statute. The new proportionate ownership rule therefore applies only prospectively to projects first making application for the exemption for property tax years beginning after 2026.

Grandfathered projects retain the full 100% exemption under current law (subject to ongoing satisfaction of the Revenue Procedure 96-32 safe harbor) but remain subject to the new annual certification requirements.

Practical Implications

For projects structured with a nonprofit instrumentality holding a small managing member interest, the proportionate ownership rule would substantially eliminate the property tax exemption if the project is not grandfathered. This is a material change to project economics and warrants immediate attention for any deal in the pipeline.

For projects that cannot be grandfathered, alternative structures should be evaluated, including ground lease arrangements and ownership restructuring to bring the nonprofit’s interest above 50%. Each alternative has its own legal, tax, and financial implications that require careful analysis on a deal-by-deal basis.

The annual certifications, which would apply to all projects relying on the exemption (including those grandfathered), also impose administrative burdens that increase expenses and complicate property management.

Comparison to North Carolina

North Carolina’s analogous exemption under N.C.G.S. § 105-278.6(a)(8) has historically been more permissive than the regime South Carolina is now considering. In In re Blue Ridge Housing of Bakersville LLC, the North Carolina Court of Appeals held that a nonprofit holding even a minor ownership interest in a low-income housing property could qualify the property for full exemption under a multi-factor test of nonprofit ownership and control. South Carolina’s proposed all-units-at-or-below-80%-AMI exception loosely parallels North Carolina’s approach, but North Carolina has never conditioned partial exemption on every unit clearing the income threshold.

That comparative advantage may be short-lived. In December 2025, North Carolina House Speaker Destin Hall formed the House Select Committee on Property Tax Reduction and Reform, which released its draft report to the General Assembly on May 1, 2026 recommending modifications to the low- to moderate-income housing exemption. H.B. 1042 (Affordable Housing Exemption Mods), re-referred to the Committee on Finance on May 11, 2026, would effectively close the Blue Ridge Housing standard by requiring 100% nonprofit ownership for properties without government financing. If both bills are enacted, North Carolina would become significantly more restrictive than South Carolina under its amended statute, eliminating any historical advantage of structuring affordable housing investments in North Carolina. Stakeholders in both states should monitor these parallel developments closely.

Outlook

The bill cuts both ways for tenants. Higher tax burdens on partially-owned projects could reduce the supply of new affordable units and pressure existing projects toward market rents, particularly where ownership restructuring is not feasible. At the same time, the all-units exception may encourage developers to forgo the 25% market-rate flexibility in the Revenue Procedure 96-32 safe harbor and commit entire properties for lease to tenants earning 80% or less of AMI in exchange for the full exemption.

Whether the net effect favors expanded affordability or constricts the pipeline will depend on how the industry responds, the pace at which existing structures unwind, and whether SCDOR provides additional guidance on certification and compliance.

The immediate window for grandfather protection under H. 5006 is short and the consequences of missing it are significant. For projects scheduled to close imminently, the sequence is closing, deed recordation, and SCDOR exemption application, in that order. The application cannot be filed without the deed, so timing the recordation to occur before the Governor signs H. 5006 is critical. Legislative inaction over the past year is not a reliable predictor of the next several days.

MVA will continue to monitor House consideration and the parallel developments in North Carolina and will issue further updates as warranted.

Resources

H. 5006 bill tracker (SC official): https://www.scstatehouse.gov/sess126_2025-2026/bills/5006.htm

Senate Journal, May 7, 2026 (Senator Johnson’s amendment): https://www.scstatehouse.gov/sess126_2025-2026/sj26/20260507.htm#p22

H.B. 1042 bill tracker (NC official): https://www.ncleg.gov/BillLookUp/2025/H1042