Tennessee has handed cities and counties a new, optional tax trick that could cheapen affordable housing deals: local governments can now choose to ignore the value of low income housing tax credits when they calculate a development's taxable value. Backers say that move can shave financing costs on projects that rely on those credits and help unlock more below market apartments, while skeptics warn it could eat into property tax revenue if widely adopted. The tweak specifically targets multi unit rental housing under government restrictions and changes how local assessors are required to value those properties.
According to The Tennessean, the change comes as federal tax credits have already helped finance more than 70,000 affordable rental homes in Tennessee, a total the paper reported using national LIHTC data.
How The Law Changes Property Valuations
The new measure creates a fresh valuation framework for multi unit rental housing that has government affordability restrictions. It tells assessors to use income based approaches for these properties and to leave out the dollar value of any federal or state housing tax credits when they calculate taxable value. It also directs the Comptroller’s Division of Property Assessments, working with the Tennessee Housing Development Agency, to publish an annual capitalization rate range, and it lays out notification rules for owners along with penalties if they fail to disclose a property’s restricted status. See the Tennessee General Assembly for the full language and technical details.
How Tax Credits Actually Lower Costs
The Low Income Housing Tax Credit, or LIHTC, gives developers a 10 year stream of federal tax credits. Developers typically sell those credits to investors in exchange for upfront equity, which reduces the amount of debt a project has to carry and makes it possible to charge lower rents. National analysts point out that LIHTC is the main production tool for affordable rental housing in the United States and has supported millions of income restricted units since the program began, with the Urban Institute offering widely cited explanations of how the credit works and why it dominates this space.
Affordability Pressure That Pushed The Change
Supporters lean heavily on Tennessee’s rent burden numbers. Think Tennessee’s county dashboard shows that nearly half of renters statewide pay 30 percent or more of their income on housing, and in Davidson County about 51 percent of renters are considered cost burdened. Those figures drive the argument that Tennessee needs every possible tool to build and preserve income restricted apartments. See data from Think Tennessee.
Local Opt In And Fiscal Tradeoffs
The law is permissive rather than automatic. It only kicks in for a city or county that passes an ordinance or resolution opting to exclude tax credit value from assessments. The state’s Fiscal Review Committee warns in its analysis that the shift will create recurring foregone local revenue as new qualifying projects come online, and it models modest multi year revenue losses in a sample group of developments, while noting that real world results will depend on the size of tax credit awards and local property tax rates. Read the Tennessee Fiscal Review Committee for the modeled scenarios and assumptions.
Where The Houses Already Are
The Tennessean reported state data showing about 73,157 LIHTC units across Tennessee, with most development clustered in the big metros. The Nashville area has added roughly 27,000 LIHTC units, while the Memphis area has added about 26,500. The coverage also notes that a small group of developers has been especially active in Nashville’s recent pipeline and includes maps and county by county breakdowns.
What To Watch Next
In practical terms, the law only starts to matter after local legislators make a move and state officials publish their guidance. The Tennessee Fiscal Review Committee memo puts the effective, operable date for new projects at July 1, 2026, and notes that the Comptroller will begin publishing capitalization rate ranges with tax year 2026. Property owners who want their buildings valued under the restricted use method will have to file specific notice forms with county assessors, and if they fail to do that the law makes them liable for delinquent property taxes, interest, and penalties.
Housing advocates say the change removes a technical hurdle that has made some LIHTC deals harder to finance. Local officials now have to decide whether that benefit is worth the tradeoff of lower property tax bills on the parcels that use the exclusion. Groups including Think Tennessee argue that the law gives communities more flexibility to preserve and produce income restricted homes, while county and city finance officers are likely to watch closely how projected revenues shift as new projects seek to use the revised valuation method.
