HB 1040
In CommitteeHouse
Rental income/property tax
Concerning rental income received by people eligible for certain property tax exemption programs.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill allows people applying for certain property tax exemptions to exclude up to $6,000 per year of rental income from their home when calculating their eligibility — helping more low- and moderate-income homeowners (especially seniors and people with disabilities) qualify for or maintain their exemptions. It also updates income limits and clarifies which types of rental income count toward those limits.
- Adds a new definition of 'rental amount' and allows up to $6,000 per year of rental income from a person’s principal residence to be excluded when calculating 'combined disposable income' for property tax exemption eligibility.
- Clarifies that only long-term rentals (not short-term rentals like Airbnb or VRBO) qualify for the $6,000 exclusion — short-term rental income must still be reported as full income.
- Expands the definition of 'disposable income' to include certain types of income (e.g., capital gains, pensions, Social Security) but also adds new exclusions for specific medical and disability-related expenses.
- Updates income thresholds for property tax exemptions to be tied to county median household income and adjusts them every three years starting August 1, 2023.
- Amends existing law (RCW 84.36.383) to clarify how rental income is treated in the income calculation for property tax exemption programs.
Who is affected
- Property owners who rent out part of their home — People who receive rental income from renting out part of their home (e.g., a basement apartment or accessory dwelling unit) and who apply for property tax exemptions. This bill allows them to exclude up to $6,000 of annual rental income when calculating eligibility for property tax exemption programs.
- Property tax exemption applicants (e.g., seniors, people with disabilities) — Seniors, people with disabilities, and others who qualify for property tax exemptions but may have been previously disqualified or had reduced exemptions due to rental income being counted as full taxable income.
- County and municipal governments — Local governments that collect property taxes, which may see reduced revenue from affected properties due to expanded eligibility for exemptions.
- Short-term rental operators — Landlords who rely on short-term rentals (e.g., Airbnb, VRBO) — this group is *not* affected because the bill explicitly excludes short-term rental income from the $6,000 exclusion.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (3)
The $6,000 rental income exclusion directly helps low- and moderate-income homeowners—especially seniors and people with disabilities—by allowing them to earn supplemental income without losing critical property tax relief. This supports housing stability and prevents displacement in high-cost areas.
HousingPeopleRef: RCW 84.36.383(2)(n)By excluding rental income up to $6,000 from combined disposable income, the bill expands access to property tax exemptions for households just above current income thresholds—many of whom are working-class or fixed-income. This prevents a “cliff effect” where small income gains trigger loss of vital tax relief.
FinancialPeopleRef: RCW 84.36.383(2)(n)The explicit exclusion of short-term rental income from the $6,000 exclusion reinforces long-term housing stability and reduces regulatory ambiguity—helping counties enforce housing codes and prevent illegal short-term rentals that can destabilize neighborhoods and reduce long-term rental supply.
Public SafetyPeopleRef: RCW 84.36.383(2)(n)(ii)
Potential Concerns (3)
The $6,000 rental income exclusion expands eligibility for property tax exemptions, which reduces local government property tax revenue—especially impactful for counties with limited fiscal flexibility. Though the fiscal impact is described as “small,” the cumulative effect across 39 counties could strain services like schools, fire districts, and emergency response, particularly in rural or high-need areas.
Local GovernmentPeopleRef: RCW 84.36.383(2)(n)By excluding only long-term rentals from the income calculation, the bill inadvertently discourages short-term rentals (e.g., Airbnb), potentially reducing flexible housing supply in high-demand markets. While this aligns with public safety and housing stability goals, it may reduce income opportunities for moderate-income homeowners seeking to offset rising housing costs—especially in tourist areas.
HousingPeopleRef: RCW 84.36.383(2)(n)The $6,000 exclusion is not indexed to inflation; over time, its real value erodes, limiting long-term effectiveness for low- and moderate-income households facing rising rents and living costs. This reduces the policy’s durability as a tool for housing affordability.
FinancialPeopleRef: RCW 84.36.383(2)(n)
Who Is Most Affected
Low- and moderate-income homeowners who rent out rooms or ADUs benefit significantly: they can now earn up to $6,000/year in rental income without jeopardizing property tax relief, reducing housing cost burdens and helping them stay in their homes.
Local governments face reduced property tax revenue, especially in counties with high numbers of exemption applicants. While the fiscal impact is described as “small,” cumulative effects could strain budgets for schools, fire districts, and public health services—particularly in rural or high-need areas.
Long-term rental operators benefit from clarity and protection; short-term rental operators are explicitly excluded, which may reduce their income opportunities and increase regulatory risk—especially in tourism-dependent communities.