Property owners saved $56.8 million over the past 10 years,
primarily in King County and for commercial properties. While preference use has
declined, use increased 6% between 2020 and 2022.
November 2023
Executive Summary
Tax exemption for rehabilitated historic properties
The 1985 Legislature enacted a special property tax valuation for rehabilitated
historic properties. Owners of qualifying properties may deduct rehabilitationRepairing or altering a property so that
it preserves significant architectural or cultural features. costs
from the taxable value of the property for ten years if the costs are at least 25% of
the assessed structure's value. The preference applies to both state and local
property taxes.
The 2020 Legislature enacted two seven-year extensions of the special valuation.
Extensions are available only in cities with populations under 20,000 that are located
in distressed countiesCounties with
three-year average unemployment rates at least 20% above the state average.
.
The preference achieves the stated public policy objective
In 2020, the Legislature stated the preference was intended to promote historic
property revitalization and set a January 1, 2031, expiration date for new applicants.
It indicated its intent to extend the expiration date if the number of taxpayers
claiming the preference increases.
Objectives (stated)
Results
To promote historic property revitalization.
Met. Property owners in 19 counties used the preference and
rehabilitated 1,046 historic properties from 2013 to 2022.
Recommendations
Legislative Auditor's Recommendation: Continue
The Legislature should continue the preference because it is meeting its
objective to promote historic property revitalization. JLARC staff will review the
preference again prior to the January 1, 2031, expiration date for new applicants and
determine whether preference use has increased over time. It will be important that
all counties where the preference has been used provide data in order to accurately
determine if the objective has been met.
The Department of Archaeology & Historic Preservation (DAHP) concurs with this recommendation. You can find more information in Recommendations.
Commissioners' Recommendation
Endorse the Legislative Auditor's recommendation with comment. Housing availability
remains an issue in many communities and continuing this preference could retain or
add housing stock by utilizing existing buildings. As construction costs continue to
rise, the tax preference makes rehabilitating historic buildings more financially
viable, encouraging owners to restore these properties. The Legislature may want to
extend this preference to include attached dwelling units and detached dwelling units
that are associated with existing historic buildings.
Committee Action to Distribute Report
On November 29, 2023 this report was approved for distribution by the Joint
Legislative Audit and Review Committee.
Action to distribute this report does not imply the Committee agrees or disagrees
with the Legislative Auditor recommendations.
23-05 Final Report: Rehabilitated Historic Properties
November 2023
REVIEW Details
1. 10-year special valuation for rehabilitated historic properties
County assessors deduct rehabilitation costs from the assessed
values of historic properties for ten years
The Legislature enacted this preference in 1985 in anticipation of the state's 1989
centennial celebration, stating it wanted to "encourage maintenance, improvement, and
preservation of privately owned historic landmarks."
The preference reduces the amount of property taxes an owner pays by applying a
special valuation to qualifying properties. County assessors deduct the cost of
rehabilitation from the assessed value of the qualifying historic structures for ten
years. To date, 28 of 39 counties have enacted local ordinances that allow property
owners to use the preference.
The preference is available to owners of historic single- and multi-family
residential, commercial, and other properties that are listed on either:
The National Register of Historic PlacesThe official federal list of districts, sites, buildings,
structures, and objects deemed worthy of preservation for their historical
significance or "great artistic value." as an individual property
or as part of a National Register Historic District.
A Local Register of Historic Places established by a Certified Local Government.
Local historic preservation commissions must approve rehabilitation projects before
county assessors apply the special valuation
A local historic preservation commission must approve rehabilitation projects before
the property owner can claim the preference. Rehabilitation means repairing or
altering a property so that it preserves significant architectural or cultural
features. Rehabilitation work must:
Be completed within two years before the owner applies for the preference.
Cost at least 25% of the property's pre-rehabilitation assessed value.
Property owners pay for rehabilitation costs up front, then submit documentation of
those costs to the commission. Upon the commission's approval of the rehabilitation
work and costs, the county assessor's office subtracts qualified rehabilitation costs
from the property's assessed value for the next ten years. The assessor's office will
reassess the property value during the ten-year period, but the rehabilitation costs
subtracted from the assessed value remain the same.
There is no limit to the number of special valuations a property may have under the
preference. A property may have overlapping special valuations for multiple
rehabilitation projects that begin and end in different years. If rehabilitation costs
are equal to or exceed the total assessed value, an owner may fully eliminate the tax
on their property's structures. However, property owners do not receive refunds and
they must pay taxes on the value of the land on which the structures are located.
After the ten-year period ends, the property is taxed on its full assessed value.
Preference users must maintain qualifying structures in good condition
Statute requires property owners to sign an agreement when applying for the
preference. The agreement confirms that property owners will:
Maintain the property in good condition.
Seek approval from the local historic preservation commission before making more
improvements.
Ensure the property is visible from a public right of way or open it to public
access at least one day a year.
If they violate the agreement, the property owners must pay back all past tax
savings, along with penalties and interest.
The 2020 Legislature set an expiration date for new applicants and extended the
special valuation period for properties located in distressed areas
The 2020 Legislature stated the preference was intended to help revitalize historic
properties. It set a January 1, 2031, expiration date for new applicants and indicated
its intent to extend the expiration date if the number of taxpayers claiming the
preference increases.
The Legislature also permitted property owners in certain areas to apply for two
seven-year extensions to the ten-year special valuation period. Extensions are
available only for properties located in a city with a population under 20,000 in a
distressed county .
A distressed county has a three-year average unemployment rate at least 20%
higher than the state average. As of March 2023, the Employment Security Department
identified 15 distressed counties.
Stakeholders testified in 2020 that the extension was likely available in
Aberdeen, Hoquiam, Chehalis, Centralia, Ritzville, Dayton, Shelton, and Kettle
Falls.
To date, four properties have received seven-year extensions: two in Dayton
(Columbia County) and one each in Aberdeen and Hoquiam (Grays Harbor County).
Cities may not grant extensions after January 1, 2057.
23-05 Final Report: Rehabilitated Historic Properties
November 2023
REVIEW Details
2. Property owners saved $56.8 million over 10 years
Between 2013-2022, property owners saved $56.8 million on 1,046
historic properties
The special valuation is available in 28 of 39 counties
The preference is available to property owners in 28 counties that have enacted an
ordinance or passed local rules to allow it. JLARC staff contacted assessors in those
counties to determine how many properties have claimed it between 2013 and 2022.
19 county assessors provided details about properties that used the special
valuation.
Whatcom County's assessor confirmed that at least one property used the preference
but did not provide more detail.
8 assessors confirmed the preference had not been used in their counties.
Based on information from the county assessors, JLARC staff
determined that 1,046 properties in 19 counties received special valuations with the
preference between 2013 and
2022.
Exhibit 2.1: 19 counties provided data on the property owners benefiting from the
special valuation
Source: JLARC staff analysis of Department of Archeology and Historic Preservation
and county assessor data.
Beneficiaries saved an estimated $8.4 million in 2022
JLARC staff estimate beneficiary property owners saved $8.4 million in property taxes
in 2022 with the special valuation. The estimated beneficiary savings for the 2025-27
biennium are $22.7 million.
Unlike most property tax preferences, this preference results in a property tax loss
for state and local taxing districts during the ten-year special valuation period,
rather than a shift to other taxpayers.
Exhibit 2.2: Beneficiaries statewide are estimated to save $22.7 million in the
2025-27 biennium
Biennium
Calendar Year
Estimated Beneficiary Savings
2011-13
7/1/11 - 6/30/13
2013
$4,752,000
2013-15
7/1/13 - 6/30/15
2014
$4,670,000
2015
$4,570,000
2015-17
7/1/15 - 6/30/17
2016
$4,806,000
2017
$5,456,000
2017-19
7/1/17 - 6/30/19
2018
$5,422,000
2019
$5,407,000
2019-21
7/1/19 - 6/30/21
2020
$6,528,000
2021
$6,764,000
2021-23
7/1/21 - 6/30/23
2022
$8,387,000
2023
$8,967,000
2023-25
7/1/23 - 6/30/25
2024
$9,587,000
2025
$10,251,000
2025-27
7/1/25 - 6/30/27
2026
$10,960,000
2027
$11,718,000
2025-27 biennium
$22,678,000
Source: JLARC staff analysis of county assessor property tax data 2013-2022. Future
growth is estimated based on average growth in beneficiary savings from 2013-2022
(7%).
Preference use has declined over time, but increased 6% between 2020 and 2022
The preference was enacted in 1985. Data about the preference's use is not available
for all years. County assessors provided JLARC staff with information about the number
of properties benefiting from the preference for the ten-year period between 2013 and
2022.
Exhibit 2.3: Beneficiary savings have grown during the past ten years. While the
overall number of preference users has declined, use increased in the two most recent
years.
Source: JLARC staff analysis of county assessor property tax data, 2013-2022. Data
does not include Whatcom County.
23-05 Final Report: Rehabilitated Historic Properties
November 2023
Review Details
3. 2022 savings concentrated in King County and commercial properties
In 2022, King County and commercial property owners accounted for
the majority of the beneficiary savings. Preference users were distributed across
counties and property types.
Although the preference is available in 28 counties, most of the 2022 beneficiary
savings are for properties located in King County. Statewide, more residential
property owners claim the preference, but commercial properties comprise a larger
portion of the beneficiary savings.
In 2022, King County property owners received 65% of total savings and preference
users were concentrated in King, Spokane, and Pierce counties
The majority of property owners claiming the preference were located in three
counties.
72% of preference users were located in King, Spokane, and Pierce counties.
Savings were highest for King County property owners, followed by those in
Spokane.
Exhibit 3.1: Properties in King, Spokane, and Pierce counties accounted for most of
the preference users and tax savings in 2022
Source: JLARC staff analysis of 2022 county assessor property tax data for King,
Pierce, and Spokane counties.
Commercial properties account for 43% of the total properties but 74% of the
beneficiary savings in 2022
County assessors categorize real property based on its use. JLARC staff grouped
beneficiary properties into three broad categories:
Single-family residential
Multi-family residential, including condominiums, townhouses, and
apartments.
Commercial, including hotels, office buildings, retail, and other.
In 2022, 57% of the beneficiary properties were single- or multi-family residential
properties and 43% were commercial. However, the beneficiary savings for the
commercial properties accounted for 74% of the 2022 beneficiary savings.
Exhibit 3.2: More single- and multi-family residential property owners use the
preference, but commercial property owners receive the largest savings
Source: JLARC staff analysis of beneficiary property tax data for 2022 provided by
county assessors.
Race and ethnicity data is available for counties and zip codes where beneficiary
properties are located
Data about the race and ethnicity of beneficiary property owners is not available.
However, the U.S. Census Bureau collects information about the race and ethnicity of
residents in each zip code.
JLARC staff determined that 86 of the state's 607 zip codes contain at least one
beneficiary property. JLARC staff compiled race and ethnicity data for the resident
population in each zip code where one or more properties are located.
Exhibit 3.3: Race and ethnicity by zip code for areas where beneficiary properties
are located
Click the image to open an interactive map in Tableau
Source: JLARC staff analysis of county assessors' records on beneficiary properties
and 2020 U.S. Census Bureau zip code level detail on residents' race and ethnicity.
Beneficiary properties include single- and multi-family residential properties and
commercial properties.
23-05 Final Report: Rehabilitated Historic Properties
November 2023
Review Details
4. Applicable statutes
RCW 84.26.070 and RCWs 84.26.010 through 84.26.030
RCW 84.26.070
Valuation.
The county assessor shall, for ten consecutive assessment years following the
calendar year in which application is made, place a special valuation on property
classified as eligible historic property.
The entitlement of property to the special valuation provisions of this section
shall be determined as of January 1. If property becomes disqualified for the
special valuation for any reason, the property shall received the special valuation
for that part of any year during which it remained qualified or the owner was acting
in the good faith belief that the property was qualified.
At the conclusion of special valuation, the cost shall be considered as new
construction.
A property is eligible for two seven-year extensions of the special valuation
if:
The property is located in a county that is listed as a distressed area as
reported by the state employment security department and the city is under
twenty thousand in population; and
The property continues to meet the criteria provided in RCW 84.26.030.
Extensions must be applied for by the owner, upon forms prescribed by the
department of revenue and supplied by the county assessor, at least ninety days
prior to the expiration of the special valuation.
All extensions must be reviewed by the local review board and may be approved
or denied at the local review board's discretion.
No extension may be provided under this subsection on or after January 1,
2057.
[2020 c 91 § 1; 1986 c 221 § 5; 1985 c 449 § 7.]
Notes:
Tax preference performance statement—2020 c 91 §§ 1 and 2:
This section is the tax preference performance statement for the tax preference
contained in sections 1 and 2, chapter 91, Laws of 2020. This performance statement
is only intended to be used for subsequent evaluation of the tax preference. It is
not intended to create a private right of action by any party or to be used to
determine eligibility for preferential tax treatment.
The legislature categorizes this tax preference as one intended to provide tax
relief for certain businesses or individuals as provided in RCW
82.32.808(2)(e).
It is the legislature's specific public policy objective to promote the
revitalization of historic properties.
If the review finds that the number of taxpayers claiming this preference
increases, then the legislature intends to extend the expiration date of this tax
preference.
In order to obtain the data necessary to perform the review in subsection (4) of
this section, the joint legislative audit and review committee may refer to any data
collected by the state." [2020 c 91 § 3.]
RCW 84.26.010
Legislative findings.
The legislature finds and declares that it is in the public interest of the people of
the state of Washington to encourage maintenance, improvement, and preservation of
privately owned historic landmarks as the state approaches its Centennial year of
1989. To achieve this purpose, this chapter provides special valuation for
improvements to historic property.
[1985 c 448 § 1.]
RCW 84.26.020
Definitions.
Unless the context clearly requires otherwise, the definitions in this section apply
throughout this chapter.
"Historic property" means real property together with improvements thereon, except
property listed in a register primarily for objects buried below ground, which
is:
Listed in a local register of historic places created by comprehensive
ordinance, certified by the secretary of the interior as provided in P.L.
96-515; or
Listed in the national register of historic places.
"Cost" means the actual cost of rehabilitation, which cost shall be at least
twenty-five percent of the assessed valuation of the historic property, exclusive of
the assessed value attributable to the land, prior to rehabilitation.
"Special valuation" means the determination of the assessed value of the historic
property subtracting, for up to ten years, such cost as is approved by the local
review board.
"State review board" means the advisory council on historic preservation
established under chapter 27.34 RCW, or any successor agency designated by the state
to act as the state historic preservation review board under federal law.
"Local review board" means a local body designated by the local legislative
authority.
"Owner" means the owner of record.
"Rehabilitation" is the process of returning a property to a state of utility
through repair or alteration, which makes possible an efficient contemporary use
while preserving those portions and features of the property which are significant
to its architectural and cultural values.
[1986 c 221 § 1; 1985 c 449 § 2.]
RCW 84.26.030
Special valuation criteria.
Four criteria must be must for special valuation under this chapter. The property
must:
Be an historic property;
Fall within a class of historic property determined eligible for special valuation
by the local legislative authority;
Be rehabilitated at a cost which meets the definition set forth in RCW
84.26.020(2) within twenty-four months prior to the application for special
valuation; and
Be protected by an agreement between the owner and the local review board as
described in RCW 84.26.050(2).
[1986 c 221 § 2; 1985 c 449 § 3.]
23-05 Final Report: Historic Properties
November 2023
Recommendations & Responses
Legislative Auditor's Recommendation
Legislative Auditor's Recommendation: Continue
The Legislature should continue the preference because it is meeting its
objective to promote historic property revitalization. JLARC staff will review the
preference again prior to the January 1, 2031, expiration date for new applicants and
determine whether preference use has increased over time. It will be important that
all counties where the preference has been used provide data in order to accurately
determine if the objective has been met.
Legislation Required: No
Fiscal Impact: None.
Agency Response: The Department of Archaeology & Historic Preservation (DAHP) concurs with this recommendation.
23-05 Final Report: Historic Properties
November 2023
Recommendations & Responses
Letter from Commission Chair
23-05 Final Report: Historic Properties
November 2023
Recommendations & Responses
Commissioners' Recommendation
The Commission endorses the Legislative Auditor's recommendation with comment.
Housing availability remains an issue in many communities and continuing this
preference could retain or add housing stock by utilizing existing buildings. As
construction costs continue to rise, the tax preference makes rehabilitating historic
buildings more financially viable, encouraging owners to restore these properties. The
Legislature may want to extend this preference to include attached dwelling units and
detached dwelling units that are associated with existing historic buildings.
23-05 Final Report: Historic Properties
November 2023
Recommendations & Responses
DOR & OFM Response
23-05 Final Report: Historic Properties
November 2023
Recommendations & Responses
DAHP Response
23-05 Final Report: Historic Properties
November 2023
More about this review
Study questions
Click image to view PDF of proposed study questions
