Key Points

  • House Bill 1042 would have removed affordable rental housing from North Carolina's charitable property tax exemption, G.S. 105-278.6, and placed it under a new and far more demanding exemption of its own, a proposed G.S. 105-278.7A.
  • Qualification would have tightened materially: two narrower pathways, a recorded fifteen-year affordability commitment, rents capped at thirty percent of the eighty-percent-of-area-median-income limit, and mandatory requalification of every currently exempt property by the end of 2026.
  • The bill cleared the House and advanced to the Senate with county-government support, framed by supporters as closing a loophole attributed to the 2013 Blue Ridge Housing decision.
  • SAHA's general counsel met directly with state senators and members of the Senate Finance Committee, arguing that a measure aimed at abuse should not sweep away compliant, mission-driven partnerships or force sound properties to requalify against a shifting standard.
  • Lawmakers finalized the state budget without HB 1042 and the Senate held no hearing. The bill remains in the Senate Rules Committee — stalled, not defeated.
  • Owners should expect the issue to return in a future session and should keep affordability commitments and compliance records current.

When North Carolina lawmakers finalized the state budget this summer without acting on House Bill 1042, it was easy to miss. No vote was taken, and no hearing was held; a bill that had cleared the House only weeks earlier simply did not move. But for the owners of affordable rental housing across North Carolina, and for the thousands of families who live in it, that quiet non-event was one of the more consequential developments of the session. The tool that keeps many affordable properties financially viable is, for now, still standing.

Background

House Bill 1042, titled "Affordable Housing Exemption Mods.," would have reshaped how North Carolina taxes affordable rental housing. Rather than amend the charitable exemption these properties rely on today, the bill would have removed affordable rental housing from that statute, G.S. 105-278.6, and placed it under a new and far more demanding exemption of its own — a proposed G.S. 105-278.7A.1 Qualifying would have become harder. The new exemption offered two pathways: one for housing financed through government programs such as the Low-Income Housing Tax Credit, tax-exempt bonds, or public loans and grants, and one for property wholly owned and operated by a nonprofit with at least five years of affordable housing experience. Both required a fifteen-year affordability commitment recorded against the property. The bill would also have required rents in qualifying units to stay at or below thirty percent of the eighty-percent-of-area-median-income limit, and required every currently exempt property to reapply under the new standard by the end of 2026.2

This was not a fringe proposal. Sponsored by a group of House members and backed by county governments as a way to close what supporters called a loophole created by the Blue Ridge Housing decision — a 2013 state Court of Appeals ruling — it passed the House unanimously, 117 to 0, in May, and moved to the Senate with real momentum.3 The General Assembly's Fiscal Research Division estimated the change would add roughly $22 million a year to local revenue beginning in fiscal year 2027–28, rising to about $32.6 million by fiscal year 2030–31.4 Put another way, that is roughly how much relief it would have withdrawn from the properties now receiving it.

Why the Exemption Matters

For an owner of affordable housing, the exemption is rarely a windfall; it is the line item that makes the rent math work. Property tax is one of the largest costs a building carries, and because affordable rents are capped, an owner cannot raise them to absorb a sudden tax bill. Strip the exemption away, or force a property to requalify under standards it was never built to meet, and the pressure has to land somewhere: on deferred maintenance, on resident services, and ultimately on the affordability the property was created to protect. What reads on a county ledger as recovered revenue reads, at the property level, as a threat to the very homes the policy was meant to preserve. That is why HB 1042 was never only a tax question. It was a housing question.

SAHA's Advocacy

SAHA did not watch the bill from the sidelines. As HB 1042 advanced to the Senate, SAHA's general counsel traveled to Raleigh to meet directly with state senators and to press SAHA's case with members of the Senate's Finance Committee. The argument was not that accountability is unwelcome. SAHA has consistently supported transparency and the removal of bad actors from these programs. The point was that a measure aimed at abuse should not sweep away the legitimate, mission-driven partnerships that keep thousands of units affordable, nor force sound properties to requalify against a shifting standard on a compressed timeline. That case was made in person, in the rooms where the bill's fate would be decided.

Where Things Stand

When lawmakers finalized the state budget, they did not include HB 1042, and the Senate held no hearing on it.5 The bill remains in the Senate Rules Committee, where it was sent after clearing the House, rather than on its way to the governor's desk. For every affordable property in North Carolina that depends on the exemption, that is a meaningful reprieve: for now, existing relief stays in place, and no owner faces an imminent, year-end scramble to requalify. It is a real result, and it is worth marking.

It is also worth being clear-eyed about. HB 1042 was not defeated so much as set aside. It stalled in a Senate committee without a vote, which leaves it technically alive for the remainder of the two-year session rather than dead. But it is not poised to move in the near term: when lawmakers reconvene later in the summer, they do so under an adjournment resolution that limits them to a defined set of matters — such as the budget, gubernatorial vetoes, constitutional amendments, and appointments — and an ordinary bill sitting in committee is not among them.5 The immediate threat has passed. The longer-term one has not. A measure that cleared the House without a single dissenting vote, pushed by county interests unlikely to abandon the effort, can be revived in a later session. The exemption held this round because people showed up to defend it, and it will need defending again.

Outlook

SAHA exists to administer these programs with the rigor that makes them defensible in the first place, and to stand up for them when they come under question. This summer's outcome in Raleigh is a win — for the owners who can keep their properties affordable and for the residents who can keep their homes — but it is a checkpoint, not a finish line. We will keep doing both parts of the job: keeping the promise behind every exemption honest, and making the case, wherever it needs to be made, that this quiet tool is worth keeping.

Southeast Affordable Housing Administration is a South Carolina nonprofit corporation that administers affordable housing property tax abatement programs in North Carolina and South Carolina. This article is provided for general informational purposes and does not constitute legal or tax advice. The status of pending legislation is subject to change; details described here reflect House Bill 1042 as passed by the House and its status as of mid-July 2026.

Notes

  1. North Carolina General Assembly, House Bill 1042 (2025–2026 Session), "Affordable Housing Exemption Mods.," ncleg.gov/BillLookup/2025/H1042. The bill removes affordable rental housing from the charitable exemption in G.S. 105-278.6(a)(8) and creates a new exemption at G.S. 105-278.7A.
  2. Provisions per the General Assembly's official bill summary (edition 3, as passed by the House) and the UNC School of Government Legislative Reporting Service summary: two eligibility pathways (government-supported, or 100 percent nonprofit-owned and operated for at least five years); a fifteen-year affordability restriction; a rent limit for qualifying units of 30% of the 80%-of-AMI limit, including utility allowance; and reapplication by December 31, 2026.
  3. House third-reading vote, 117 to 0, May 20, 2026; sent to the Senate May 21 and referred to the Senate Committee on Rules and Operations May 22, 2026.
  4. North Carolina General Assembly, Fiscal Research Division, Legislative Fiscal Note for House Bill 1042: estimated increase in local revenue of about $22.0 million in FY 2027–28, $25.1 million in FY 2028–29, $28.6 million in FY 2029–30, and $32.6 million in FY 2030–31.
  5. North Carolina Association of County Commissioners, Weekly Legislative Brief, July 2, 2026 (the enacted state budget did not include HB 1042). The General Assembly adjourned July 3, 2026 and is scheduled to reconvene July 27, 2026 under an adjournment resolution limiting business to enumerated matters; an ordinary public bill in committee such as HB 1042 is not among the matters eligible for consideration.