Examining Changes to North Carolina Property Tax Law: Levy Limits and the Affordable Housing Exemption

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State and local governments continue to face increasing pressure to balance rising property values, taxpayer concerns, and housing affordability. In North Carolina, recent legislative proposals reflect an effort to address these competing priorities through structural reforms to the property tax system.  

The Machinery Act, codified Subchapter II of Chapter 105 of the North Carolina General Statutes, which governs the listing, appraisal, and assessment of property, has seen few major structural shifts since it was overhauled in 1971. The current level of activity is a departure from historical norms, signaling a significant push by the General Assembly to tighten local tax authorities and redefine exemptions.   

The House Select Committee on Property Tax Reduction and Reform   

In December 2025, North Carolina House Speaker Destin Hall formed the House Select Committee on Property Tax Reduction and Reform. The 23-member bipartisan committee was tasked with reviewing rising property tax burdens, evaluating existing tax relief programs, and proposing reforms to the General Assembly. The Committee has met five times since its formation, with its last meeting occurring April 15, 2026.  

On May 1, 2026, the Committee released its draft report to the General Assembly. The report makes several recommendations to the General Assembly, including an amendment to the North Carolina constitution to enact a property tax levy limit, reductions to the nonprofit hospital property tax exemption, reductions to state and local sales tax refunds to nonprofit entities, and modifications to the low- to moderate-income housing exemption.   

Key Legislative Proposals  

Three significant bills currently under consideration represent a considerable shift in North Carolina’s property tax landscape:  

• House Bill 1042: Affordable Housing Exemption Mods: This bill targets what lawmakers describe as a “loophole” following the 2013 court ruling in The Appeal of Blue Ridge Housing of Bakersville LLC. The current draft would significantly narrow eligibility for affordable housing exemptions, requiring 100% nonprofit ownership or specific government-backed joint venture structures. It also reduces the period developers can hold land tax-deferred for future affordable housing from 10 years to 5 years.  

• House Bill 1092: Reform NC Property Tax: A comprehensive reform package that seeks to amend the State Constitution to allow exemptions based on Area Median Income (AMI). It also proposes modifying the “homestead circuit breaker” and provides $20 million in grants to help counties move toward more frequent, accurate reappraisal cycles.  

• Senate Bill 889: Property Tax Reappraisal Moratorium: This bill proposes a moratorium on certain reappraisals effective as of January 1, 2026, requiring those counties to continue using older schedules of values for the 2026-2027 fiscal year to mitigate sudden tax spikes for residents.   

The Affordable Housing Exemption  

Under current North Carolina law, certain property owned and operated by nonprofit organizations and used for charitable purposes may qualify for a partial or full exemption from property taxation. In practice, the exemption has been applied to a range of ownership structures, including joint ventures where a nonprofit ownership interest may be limited. Courts have allowed these exemptions as long as the property served a qualifying charitable purpose.   

While this framework has raised concerns among some local governments regarding reduced tax revenues, many proponents of this exemption note how these properties serve a critical and growing affordable housing need in North Carolina. By providing quality housing at below-market rates, these nonprofit and joint-venture projects act as essential infrastructure for the state’s workforce and senior populations.  

Proponents of the exemption argue that the current draft of House Bill 1042, with more restrictive eligibility and ownership requirements, could lead to significant unintended consequences. Removing or limiting the exemption for existing developments may force owners to abruptly raise rents to cover new tax liabilities, or in more extreme cases, lead to the closure of entire complexes that can no longer meet their operating costs. For an already strained housing market, these changes could inadvertently destabilize the very communities they are intended to serve.    

Constitutional Requirement for Property Tax Levy Limits   

The most significant proposed structural change to the Machinery Act in decades involves a move toward state-mandated “levy limits.” While North Carolina already has a statutory tax rate cap of $1.50 per $100 of assessed value, no county currently reaches this limit, making it largely symbolic in the current market. House Bill 1092 and associated committee drafts seek to go much further by amending Section 2(5) of Article V of the North Carolina Constitution to mandate that the General Assembly establish laws limiting the growth of property tax levies.   

If approved by voters in the November 3, 2026 general election, this amendment would introduce a “levy limit” system that shifts authority from local elected officials to the state legislature. Unlike a rate cap, a levy limit caps the total revenue a local government can collect, regardless of how much property valuations rise.   

Key elements of the proposal include:  

• Mandatory Legislative Guardrails: The General Assembly would be constitutionally required to pass laws that “limit the amount by which the levy of taxes on property may increase.”  

• Targeting “Revenue Surges”: Proponents argue that as valuations skyrocket – with some counties seeing home value increases of 50% to 60% since 2020 – levy limits are necessary to prevent unlegislated tax hikes that occur even when local governments claim they “didn't raise rates”.  

• Potential Link to Growth: Future implementing legislation would likely tie these limits to inflation and population growth, potentially allowing local voters to approve specific exceptions.  

• Local Government Concerns: Organizations like the North Carolina League of Municipalities and individual county leaders warn that artificial limits could lead to lower bond ratings, higher borrowing costs, and forced cuts to critical services like public safety, which often accounts for over half of local budgets.   

This shift toward a constitutional mandate is a direct response to the “valuation shock” experienced by homeowners during recent revaluations. By embedding this requirement in the Constitution, lawmakers aim to ensure long-term predictability for household budgets, even if it significantly alters the fiscal relationship between the state and its local jurisdictions.   

Property Tax Reappraisal Moratorium   

Lastly, Senate Bill 889 proposes a one-year moratorium on new property tax valuations for North Carolina counties that conducted revaluations effective January 1, 2026, aiming to alleviate sharp tax increases for homeowners. These counties – Anson, Bladen, Buncombe, Chowan, Clay, Davidson, Guilford, Harnett, Onslow, Pamlico, Pender, and Scotland – would be required to use the schedule of values adopted with the county’s most recent prior reappraisal for fiscal year 2026.   

Effective July 1, 2027, those counties would be required to use the schedule of values adopted for the January 1, 2026 reappraisal until the following reappraisal. The legislation would also extend the window for property owners to appeal reappraisals effective January 1, 2026 through the 2027 calendar year. The proposed legislation does not bar local governments from setting tax rates, which may result in changes to property valuations despite the moratorium.  

Conclusion  

North Carolina’s proposed reforms reflect a significant push to balance taxpayer protection with evolving local revenue needs. By pursuing constitutional limits on levy growth and narrowing Machinery Act exemptions, lawmakers have signaled a desire for a more structured, state-driven property tax system—a notable departure from the long-standing stability of these statutes.   

While these changes are intended to provide relief from valuation spikes, they also introduce new risks for affordable housing providers and local governments alike. As these bills move through the General Assembly, the Maynard Nexsen Property Tax and Government Affairs teams will continue to monitor these developments. We are committed to providing strategic guidance and timely updates to ensure our clients are prepared for this shifting legal landscape.