South Florida Community Development Coalition

"Charitable" Exemption From Payment of
Ad Valorem Property Taxes
For "Affordable Housing" Properties

The Statutory Requirements for the Exemption

Any property owned by a nonprofit can become exempt if it is used for "charitable purpose". There is a general "charitable use" exemption and a specific "affordable housing" safe harbor.

BUT- It's easier for occupied rental properties to qualify: In 1999 the Florida Legislature passed a bill that created an "affordable housing" safe harbor within the charitable use category for qualifying occupied rental units.

1. Generic "Charitable Use" Exemption :

To qualify a parcel must meet a three part test:

First Test: NonProfit Status of the Owner
Section 196.195(4) provides that: No application for exemption may be granted for religious, scientific or charitable use of property until the applicant has been found to be nonprofit within the meaning of this section. Organizations which have federal "501(c)(3)" exempt status should automatically qualify under the statute's definition of "nonprofit" because of the language that the IRS requires to be the articles of incorporation.
Second test: The Owner's Purposes and Activities Must be of a Charitable Nature:
Organizations exempt under section 501(c)(3) of the IRS Code should have no problem with this part of the test for so long as the basis of their exemption was "charitable" (as opposed to "educational" or "religious") purposes.

Third Test: Use of the Property Must be for Charitable purposes
This may be trickiest of the three tests. The term "charitable purpose" is defined in Section 196.012(7) as follows:

"a function or service which is of such a community service that its discontinuance could legally result in the allocation of public funds for the continuance of the function or service"

We are not sure exactly what this means. The word "housing" is not included. For that reason it is extremely important that applicants include a detailed written narrative as an attachment their exemption application describing their activities and plugging their housing activities into the wording of the statute.

2. "Affordable Housing" Safe Harbor
Works best for occupied rental units.

Explaination of the Requirements

Properties owned by certain 501(c)(3) organizations that are used to provide housing affordable to people earning below specified income levels "shall be considered property owned by an exempt entity and used for a charitable purpose" (that is, the properties would automatically meet the three part test outlined in the previous paragraphs). Generally, to be "affordable" the housing must be serve people earning less than 80% of the area's median income.

Here is the Actual Statute Creating the Exemption (sec.196.1978 FS).

196.1978 Affordable housing property exemption.--Property used to provide affordable housing serving eligible persons as defined by s. 159.603(7) and natural persons or families meeting the extremely-low-income, very-low-income, low-income, or moderate-income limits specified in s. 420.0004, which property is owned entirely by a nonprofit entity that is a corporation not for profit, qualified as charitable under s. 501(c)(3) of the Internal Revenue Code and in compliance with Rev. Proc. 96-32, 1996-1 C.B. 717, or a Florida-based limited partnership, the sole general partner of which is a corporation not for profit which is qualified as charitable under s. 501(c)(3) of the Internal Revenue Code and which complies with Rev. Proc. 96-32, 1996-1 C.B. 717, shall be considered property owned by an exempt entity and used for a charitable purpose, and those portions of the affordable housing property which provide housing to natural persons or families classified as extremely low income, very low income, low income, or moderate income under s. 420.0004 shall be exempt from ad valorem taxation to the extent authorized in s. 196.196. All property identified in this section shall comply with the criteria for determination of exempt status to be applied by property appraisers on an annual basis as defined in s. 196.195. The Legislature intends that any property owned by a limited liability company or limited partnership which is disregarded as an entity for federal income tax purposes pursuant to Treasury Regulation 301.7701-3(b)(1)(ii) shall be treated as owned by its sole member or sole general partner.

Let's Break That Language Down:

1. What Type of Affordable Housing Property is Considered to be "Charitable"?

The property must serve people described in Sec,.159.603(7) which reads:

(7) "Eligible persons" means one or more natural persons or a family, irrespective of race, creed, national origin, or sex, determined by the housing finance authority to be of low, moderate, or middle income. Such determination does not preclude any person or family earning up to 150 percent of the state or county median family income from participating in programs. Persons 65 years of age or older shall be defined as eligible persons regardless of their incomes. In determining the income standards of eligible persons for its various programs, the housing finance authority may consider the following factors:

And, the property must be Affordable to persons meeting income limits specified in Sec. 420.0004 (9), (10), and (14) which read:

(9) "Low-income persons" means one or more natural persons or a family, the total annual adjusted gross household income of which does not exceed 80 percent of the median annual adjusted gross income for households within the state, or 80 percent of the median annual adjusted gross income for households within the metropolitan statistical area (MSA) or, if not within an MSA, within the county in which the person or family resides, whichever is greater.

(10) "Moderate-income persons" means one or more natural persons or a family, the total annual adjusted gross household income of which is less than 120 percent of the median annual adjusted gross income for households within the state, or 120 percent of the median annual adjusted gross income for households within the metropolitan statistical area (MSA) or, if not within an MSA, within the county in which the person or family resides, whichever is greater.

(14) "Very-low-income persons" means one or more natural persons or a family, not including students, the total annual adjusted gross household income of which does not exceed 50 percent of the median annual adjusted gross income for households within the state, or 50 percent of the median annual adjusted gross income for households within the metropolitan statistical area (MSA) or, if not within an MSA, within the county in which the person or family resides, whichever is greater.

Important Note: not all "charitable" property is actually exempt from the payment of real estate taxes, see paragraph 3, below)

2. The Owner Must be Qualified - The Property Must Be Owned by an Organization that is

A 501(c)(3) , and

The organization must be one that complies with the IRS's "safe harbor" provisions spelled out in Rev. Ruling 96-32 (not to be confused with the State of Florida's property tax "safe harbor" discussed above). This IRS affordable housing "safe harbor" allows 501(c)(3) nonprofits to safely engage in housing development even if some of the units are sold to non-low income people. 96-32 reads in part:
SEC. 3. SAFE HARBOR FOR RELIEVING THE POOR AND DISTRESSED

An organization will be considered charitable as described in section 501(c)(3) if it satisfies the following requirements:

(1) The organization establishes for each project that (a) at least 75 percent of the units are occupied by residents that qualify as low-income; and (b) either at least 20 percent of the units are occupied by residents that also meet the very low-income limit for the area or 40 percent of the units are occupied by residents that also do not exceed 120 percent of the area's very low-income limit. Up to 25 percent of the units may be provided at market rates to persons who have incomes in excess of the low-income limit.

(2) The project is actually occupied by poor and distressed residents. For projects requiring construction or rehabilitation, a reasonable transition period is allowed for an organization to place the project in service. Whether an organization's transition period is reasonable is determined by reference to all relevant facts and circumstances. For projects that do not require substantial construction or substantial rehabilitation, a one-year transition period to satisfy the actual occupancy requirement will generally be considered to be reasonable. If a project operates under a government program that allows a longer transition period, this longer period will be used to determine reasonableness.

(3) The housing is affordable to the charitable beneficiaries. In the case of rental housing, this requirement will ordinarily be satisfied by the adoption of a rental policy that complies with government-imposed rental restrictions or otherwise provides for the limitation of the tenant's portion of the rent charged to ensure that the housing is affordable to low-income and very low-income residents. In the case of home-ownership programs, this requirement will ordinarily be satisfied by the adoption of a mortgage policy that complies with government-imposed mortgage limitations or otherwise makes the initial and continuing costs of purchasing a home affordable to low and very low-income residents.

(4) If a project consists of multiple buildings and each building does not separately meet the requirements of sections 3.01(1), (2), and (3), then the buildings must share the same grounds. This requirement does not apply to organizations that provide individual homes or individual apartment units located at scattered sites in the community exclusively to families with incomes at or below 80 percent of the area's median income.

POST SCRIPT: NOT ALL "CHARITABLE" PROPERTY IS EXEMPT FROM REAL ESTATE TAXES. Only the portions of the property affordable to people earning less that 80% of Median Income can be exempt.