1. A. For purposes of this section, "qualifying residential conversion" means the conversion of a building and its structural components from retail, commercial, or religious use to residential use wherein:

   1. 1. Such building was first placed into service at least 15 years prior to the start of such conversion;
   2. 2. Depreciation is allowed for such building;
   3. 3. At completion of conversion, (i) at least 30 percent of the residential units in such building are reserved for or offered to households with per capita income at or below 80 percent of the median per capita income for the locality in which such building is located or (ii) the building owner is subject to a binding, written agreement with the Commonwealth or the locality regarding the provision of affordable housing and such agreement is documented in the form and manner required by the Department of Housing and Community Development; and
   4. 4. The certified expenses incurred within the taxable year such building is placed into residential service exceed the greater of (i) the adjusted basis of the building and its structural components or (ii) $15,000. The adjusted basis of the building shall be determined as of the first day of the taxable year in which a credit under this section is claimed.
2. B. The governing body of any locality may, by ordinance, provide for the partial exemption from taxation of real estate for which a qualifying residential conversion of a building occurs, subject to such conditions as the ordinance may prescribe. The governing body of a locality may establish criteria for determining whether such building qualifies for the partial exemption authorized by this provision and place such other restrictions and conditions on such property as may be prescribed by ordinance.
3. C. The partial exemption provided by the local governing body may be an amount equal to the increase in assessed value or a percentage of such increase resulting from the repurposing of the structure as determined by the commissioner of the revenue or other local assessing officer, but shall not exceed the amount of expenses incurred in connection with the qualifying residential conversion of such building, excluding (i) any costs associated with the acquisition of any building or interest thereon and (ii) any expenses incurred that are attributable to the enlargement of an existing building. The partial exemption may commence upon completion of the qualifying residential conversion or on January 1 of the year following completion and shall run with the real estate for a period of no longer than 15 years. The governing body of a county, city, or town may place a shorter time limitation on the length of such exemption, or reduce the amount of the exemption in annual increments over the entire period or a portion thereof, in such manner as the ordinance may prescribe.
4. D. The local governing body or its designee shall provide written notification of the partial exemption to the property owner that includes the amount of the assessment of the property that will be exempt from real property taxation and the period of such partial exemption. Such amount shall be a covenant that runs with the land for the period of the partial exemption and shall not be reduced by the local governing body or its designee during the period of the partial exemption, unless the local governing body or its designee by written notice has advised the property owner at the initial time of approval of the partial exemption that the amount may be decreased during the period of such partial exemption. In no event, however, shall such partial exemption result in totally exempting the value of the structure.
5. E. Nothing in this section shall be construed as to permit the commissioner of the revenue to list upon the land book any reduced value due to the partial exemption provided in subsection C.

6. F.

   1. 1. If a building owner claims a tax exemption pursuant to this section and at any subsequent time the building no longer meets the requirements described in subdivision A 3, the locality may recapture all or a portion of the tax exemption granted to such owner pursuant to this section in the immediately preceding year. The amount of exemption subject to recapture shall be equal to the ratio of (i) the percentage of residential units offered or reserved for households with per capita income at or below 80 percent of the median per capita income for the locality in which such building is located and (ii) 30 percent.
   2. 2. If a building owner that claims an exemption pursuant to this section sells the building for which he is claiming the exemption, and after such sale the property no longer meets the requirements of this section, the purchaser shall be subject to a penalty. Such penalty shall be the sum of the difference between the tax levied and the tax that would have been levied based on the fair market value assessment of the real estate for the previous five tax years, plus simple interest, at a rate set by the governing body, no greater than the rate applicable to delinquent taxes in such locality pursuant to § 58.1-3916. The building owner shall provide written notice to the purchaser prior to the sale that the property is subject to an exemption pursuant to this section.

2026, c. 994.