Virginia’s New Partial Property Tax Exemption for Residential Conversions
Virginia has enacted new legislation authorizing localities to provide partial real property tax exemptions for buildings undergoing “qualifying residential conversion” from commercial, retail, or religious use . This represents a significant new tool for encouraging housing development and addressing affordability challenges across the Commonwealth.
For property owners, developers, and local governments, understanding this new program is essential for evaluating potential conversion projects and maximizing available incentives.
What Is a Qualifying Residential Conversion?
Under Senate Bill 181 (Chapter 994), a building qualifies for the partial property tax exemption if it meets specific criteria :
Building Age and Use
The building must be at least 15 years old and currently used for retail, commercial, or religious purposes. The conversion must result in residential use.
Affordable Housing Requirements
The building must meet one of the following affordability requirements:
Reserving at least 30% of units for households at or below 80% of the median per capita income, OR
Being subject to a binding, written affordable housing agreement with the Commonwealth or locality
How the Partial Exemption Works
The partial exemption can last up to 15 years . The exemption may be based on either:
The increase in assessed value resulting from the qualifying conversion, OR
A percentage of such increase
However, the exemption cannot exceed the conversion expenses—excluding acquisition costs and expenses attributable to any enlargement of the building .
Local Flexibility
The legislation provides localities with flexibility in implementing the exemption. Localities may also provide additional incentives such as:
Reduced permit fees
Regulatory flexibility
Recapture and Compliance
The partial exemption is subject to recapture if affordability requirements are not maintained . Additionally, there is a potential five-year lookback tax and interest penalty upon certain noncompliant property transfers.
This means developers and property owners must ensure ongoing compliance with affordability covenants to retain the benefit of the exemption.
Related Property Tax Changes in 2026
The 2026 legislative session also brought other property tax changes :
Sale of Real Estate for Delinquent Taxes
House Bill 474 (Chapter 151) increases the maximum assessed value of a parcel of land that may be subject to appointment of a special commissioner to convey real estate to a locality as a result of unpaid real property taxes or liens. The threshold increases from $75,000 to $125,000.
Personal Property Tax Extension for Federal Shutdowns
House Bill 915 (Chapter 239) allows local governing bodies to extend personal property tax deadlines for federal employees affected by government shutdowns. This applies to furloughed employees and essential employees who work without immediate pay. The extension must end no later than 90 days after the federal government reopens.
Electric-Powered Landscaping Equipment
House Bill 557 (Chapter 403) establishes electric-powered landscaping equipment used in a trade or business as a separate class of property for local taxation. Localities may levy a tax on this equipment at a different rate than other tangible personal property .
How Nova Tax & Accounting Services Can Help
At Nova Tax & Accounting Services, we help property owners and developers understand Virginia’s evolving property tax landscape. Our team provides tax planning, entity structuring, and compliance guidance for real estate investments and conversions. For more information, visit https://novataxservices.com/ or schedule a consultation.
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