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Proposed Legislation Would Require Income-Method of Valuation for Rent-Restricted Housing to Improve Fairness of Property Taxes

on Friday, 6 March 2015 in Dirt Alert: David C. Levy, Editor

The Nebraska Legislature is considering a bill that would provide a consistent approach for county assessors to use when valuing rent-restricted housing projects for property tax assessments. Rent-restricted housing projects are five or more houses or residential units financed, at least in part, by federal low-income housing tax credits.

Senator Burke Harr of Omaha (Legislative District 8) introduced LB 356 on January 15, 2015, and the Revenue Committee considered the bill at a hearing on February 26, b2015. Proponents cite the need for low-income housing, attribute the shortfall in low-income housing in part to the lack of predictability of tax assessments, and advocate the income-approach as the most accurate and fair method of determining property taxes for rent-restricted projects.

The current version of section 77-1333 of the Nebraska Revised Statutes requires county assessors to perform an income-approach calculation, but allows assessors to use other methods, such as the sales comparison approach or the cost approach. Different approaches create unpredictability for property owners, developers, and investors when estimating property taxes. LB 356 would require county assessors to use the income-approach and a consistent capitalization rate to convert the income to a property valuation.

The bill would create a four-person Rent-Restricted Housing Projects Valuation Committee within the Department of Revenue to develop a market-derived capitalization rate for assessors to use when determining values of rent-restricted housing projects. On or before October 1 of each year, owners of these projects would have to file income and expense data for the prior year, a description of any land-use restrictions, and other information the committee or the county assessor may require. County assessors would then typically have to use the standard capitalization rate and the income and expense data in their income-approach valuations.

As of this writing, the Revenue Committee has not taken any action on the bill.

Hannah Fischer, Summer Associate

David C. Levy

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