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Committee advances substitute for conversion tax exemption, requires 30% affordable units

House Finance Committee · February 26, 2026

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Summary

The House Finance Committee reported a substitute for Senate Bill 181 that preserves local authority to offer partial real-estate tax exemptions for converting underutilized commercial or religious properties to housing, requires at least 30% of units be affordable at or below 80% of area median income, and adds recapture and penalty provisions; it passed 14–4.

The House Finance Committee reported a substitute for Senate Bill 181 after a subcommittee recommendation, advancing a local-option tool to encourage converting underused commercial or religious buildings into residential units.

Under the substitute presented by Subcommittee 2, local governments may offer a partial real-estate tax exemption to property owners who convert qualifying structures to housing. The substitute requires that at least 30% of the units created be affordable at or below 80% of the area median income. The substitute also includes a permissive recapture provision and a penalty tied to the difference between the tax that would have been levied under a fair-market-value assessment and the tax paid; counsel said the penalty would be calculated for the previous five tax years. The substitute states the exemption is “capped at 15,” with the transcript not specifying the unit of that cap.

Counsel described the recapture language: “if a building owner that claims a tax exemption pursuant to this code section ends up not holding the property for the provisions for which they were enabled that tax exemption, then it will be subject to recapture,” and explained the penalty formula tied to fair-market-value assessments over a five-year period.

The committee reported the bill with the substitute by a vote recorded in the transcript as 14 to 4. The transcript does not record subsequent referrals or next steps for this bill during this meeting.

The substitute aims to balance a local tool for adaptive reuse against affordability safeguards and enforcement mechanisms; supporters said the measures preserve local discretion while imposing guardrails to maintain affordability.