Why this matters: California’s welfare exemption partially exempts qualifying properties owned by eligible nonprofit organizations and entities from property taxes when they build or convert residential rental housing serving low-income tenants. Now, the welfare exemption is expanded in three counties to include moderate-income tenants when eligible.

The welfare exemption

California has expanded its property tax welfare exemption to encourage the construction and preservation of rental housing for low- and moderate-income households in Sacramento, San Francisco and Alameda counties.

Assembly Bill 1294, effective as of September 2026, provides a partial property tax exemption for newly constructed or commercial-to-residential converted rental housing serving low- and moderate-income tenants. [Calif. Revenue and Taxation Code §214]

The law reduces the property tax burden for low-income housing, resulting in benefits for tenants by maintaining lower rents. [Rev & T C §214(h)(1)(B)(iii)]

California’s welfare exemption provides a property tax exemption for property used exclusively for qualifying religious, hospital, scientific or charitable purposes and owned and operated by qualifying nonprofit organizations and other eligible entities.

The tax code already provides a partial welfare exemption for eligible rental housing serving low-income tenants. [Rev & T C §214(g)]

Now, qualifying rental housing is entitled to a welfare exemption in a dollar amount equal to the dollar value of the units serving both low-income and moderate-income households. [Rev & T C §214(h)]

The exemption amount is the prorate dollar value of all qualifying low- and moderate-income units based on the total value of all units. [Rev & T C §214(h)(1)]

For example, an apartment complex has 100 units. 40 units serve qualifying low- or moderate-income households.

40 ÷ 100 = 40%

Therefore, 40% of the property’s value is exempt from taxation. The value of the remaining 60% remains subject to property taxes.

Eligibility requirements

To be eligible for the partial welfare exemption, the property needs to be:

  • located in Alameda County, Sacramento County or the City and County of San Francisco [Rev & T C §214(h)(1)(C)(ii)];
  • used exclusively for rental housing and related facilities [Rev & T C §214(h)(1)];
  • owned and operated by qualifying religious, hospital, scientific or charitable organizations, corporations, limited liability companies or veterans’ organizations [Rev & T C §214(h)(1)];
  • continuously available for occupancy by qualifying households for at least 55 years [Rev & T C §214(h)(1)(B)(i)];
  • offered with an initial rent below the fair market rent for the unit type in comparable properties where the property is located [Rev & T C §214(h)(1)(B)(ii)]; and
  • newly constructed or converted from existing commercial space to new residential units on or after January 1, 2027, and before January 1, 2030. [Rev & T C §214(h)(1)(C)(i)]

Rent and eligibility restrictions

A unit continues to qualify even when the income of its occupants subsequently increases, so long as the household was low or moderate income when it initially occupied the unit and the unit remains rent restricted.

The household may have income up to 140% of area median income (AMI), adjusted for family size, without the unit losing its qualifying status. Once household income exceeds 140% of AMI, the unit ceases to be treated as a qualifying low- or moderate-income unit. [Rev & T C §214(h)(1)(B)(i)(I)]

Further, while a qualifying household remains in a welfare-exempt unit, the rent may not be increased by more than the percentage increase in the county’s AMI between the two most recent publications of the state income limits. [Rev & T C §214(h)(1)(B)(ii)(I)]

Also, when the applicable fair market rent is less than or equal to the rent moderate-income households qualify to pay, the initial rent needs to be at least 10% below the Small Area Fair Market Rent developed by the U.S. Department of Housing and Urban Development (HUD). [Rev & T C §214(h)(1)(B)(ii)(II)]

Related article:

May a city impose a special tax on a property owned by a religious institution?