Virginia Nonprofit Property Tax Exemptions New Rules for 2026 and Beyond

For Virginia nonprofits that own real property, understanding the Commonwealth’s property tax exemption framework is essential. The Code of Virginia, specifically Title 58.1, Chapter 36, Article 3, provides classification exemptions for various types of nonprofit organizations, including religious, charitable, patriotic, historical, benevolent, cultural, and public park organizations. Under §58.1-3609, the real and personal property of an organization classified under §§58.1-3610 through 58.1-3622 and used for a qualifying purpose is exempt from taxation.

Each classification has specific requirements. For example, churches and religious bodies are classified under §58.1-3617 as “religious and charitable organizations,” but the exemption only applies to property “used exclusively for charitable, religious or educational purposes” . If a church leases a portion of its property to a for-profit business, that portion may lose its exempt status. Similarly, other classifications include volunteer fire departments (§58.1-3610), Boys and Girls Clubs (§58.1-3611), SPCA organizations (§58.1-3613), the Boy Scouts and Girl Scouts (§58.1-3614), the American National Red Cross (§58.1-3616), college alumni associations (§58.1-3618), and Habitat for Humanity (§58.1-3622).

A critical legal principle applies: property tax exemptions are to be “strictly construed” under Article X, §6(f) of the Constitution of Virginia . This means that if there is any ambiguity about whether property qualifies for an exemption, courts and tax authorities will generally rule against the exemption. Nonprofits must be meticulous in documenting that their property is used exclusively for the qualifying purpose.

Significant new legislation has been enacted for 2026. SB388 (and its companion HB1279), which passed the General Assembly in March 2026 and received the Governor’s recommendation, allows for administrative approval of housing development on land owned by property tax-exempt religious organizations or certain nonprofit organizations . Zoning ordinances must allow by-right development and construction on such properties, subject to conditions including that at least 60% of the housing development’s total units be affordable for at least 30 years . The bill has a delayed effective date of January 1, 2027, and expires on January 1, 2031 .

Critically, the bill provides that all such housing is subject to local real property taxation following completion, unless explicitly exempted by the locality . This means that while the nonprofit entity may retain its tax-exempt status on the portion of its campus used for exempt purposes, the housing units become taxable property, creating a mixed-use tax scenario.

The legislation was contentious, with opponents arguing that it strips local zoning authority and undermines comprehensive planning by allowing administrative approval without public input . Supporters emphasized the need for affordable housing. Regardless of one’s view, nonprofits considering this pathway face complex accounting and compliance issues, including allocation of expenses between exempt and taxable uses, potential unrelated business income tax (UBIT) on rental income, and coordination with local tax assessors.

At Nova Tax & Accounting Services, our Consulting team can help Virginia nonprofits navigate these complex property tax issues, including evaluating whether property currently qualifies for exemption, documenting exempt use, and understanding the accounting implications of mixed-use development projects under SB388.