Income Approach Restored for LIHTC Valuations: Georgia Supreme Court Overrules Freedom Heights and Clarifies OCGA § 48-5-2(3)(B)(vii)(II)

Introduction

In Gateway Pines Hahira, LP v. Lowndes County Board of Tax Assessors (S25G0196), decided August 26, 2026, the Supreme Court of Georgia, per Justice Colvin, resolved an important question in ad valorem taxation of affordable housing. The Court held that county tax assessors may use the income approach to determine the fair market value of properties subject to federal Low-Income Housing Tax Credits (LIHTCs) under Internal Revenue Code § 42 (“Section 42 properties”). At the same time, the Court reaffirmed that, under OCGA § 48-5-2(3)(B)(vii)(II), LIHTCs themselves cannot be counted as “income” within that approach unless they generate actual income to the record title holder.

The case arose after the Lowndes County Board of Tax Assessors valued Gateway Pines Hahira’s LIHTC apartment complex at $5,363,682 for tax year 2018. The taxpayer challenged the valuation. The trial court, and then the Court of Appeals following its own precedent in Freedom Heights, LP v. Lowndes County Board of Tax Assessors, concluded that because LIHTCs “as currently structured” are not “actual income,” assessors could not use the income approach at all for LIHTC properties. The Supreme Court granted certiorari to decide whether that understanding comported with its prior decisions and the governing statute. It did not.

Summary of the Judgment

The Supreme Court reversed the Court of Appeals and expressly overruled Freedom Heights. It held:

• Tax assessors may use the income approach to value Section 42 properties.
• OCGA § 48-5-2(3)(B)(vii)(II) limits how the income approach may be applied: LIHTCs may be considered under the income approach only if they generate actual income to the record holder of title. Because current LIHTCs reduce tax liability rather than producing affirmative cash inflows, they generally do not count as “actual income.”
• The Court of Appeals misread the Supreme Court’s earlier decision in Heron Lake II Apartments, LP v. Lowndes County Board of Tax Assessors, 306 Ga. 816 (2019), which interprets the statute’s plain text as a how-to limitation (what can be counted within the income approach), not a whether limitation (whether the income approach can be used at all).
• Because the statute does not categorically preclude consideration of LIHTCs’ effect on value (it merely cabins their role in the income approach), it does not violate Georgia’s constitutional uniformity clause.

The case was remanded for further proceedings consistent with these holdings.

Analysis

Precedents Cited and Their Influence

• Heron Lake II Apartments, LP v. Lowndes County Board of Tax Assessors, 306 Ga. 816 (2019) (“Heron Lake Two”).
  The Court’s interpretive anchor. It construed OCGA § 48-5-2(3)(B)(vii)(II) by its plain text and held that LIHTCs cannot be counted as “actual income” within the income approach unless they produce actual income to the record title holder. Critically, Heron Lake Two did not prohibit use of the income approach for LIHTC properties; it merely limited what inputs (credits-as-income) are permissible within that approach. The present decision clarifies and reiterates this reading, rejecting the Court of Appeals’ broader prohibition.
• Heron Lake II Apartments, L.P. v. Lowndes County Board of Tax Assessors, 299 Ga. 598 (2016) (“Heron Lake One”).
  The Court struck down former OCGA § 48-5-2(3)(B.1), which categorically barred assessors from considering LIHTCs in valuation, as violative of the Georgia Constitution’s uniformity clause because it created a preferential subclass of property. This constitutional backdrop explains the Legislature’s subsequent, more tailored statutory approach and the Supreme Court’s ongoing insistence that LIHTCs’ effect on value may be considered somewhere in the appraisal process.
• Freedom Heights, LP v. Lowndes County Board of Tax Assessors, 369 Ga. App. 725 (2023).
  The Court of Appeals misread Heron Lake Two to mean that, given LIHTCs “as currently structured” are not “actual income,” the income approach cannot be used at all for Section 42 properties. Today’s decision overrules Freedom Heights.
• White v. State, 305 Ga. 111 (2019).
  Cited for the principle that Court of Appeals panels are bound by prior panel decisions absent overruling by that court or the Supreme Court. It explains why the Court of Appeals followed Freedom Heights and why Supreme Court intervention was necessary.

Key Statutes and Regulations Framing the Decision

• OCGA § 48-5-6: All property is returned for taxation at fair market value.
• OCGA § 48-5-2(3): Defines fair market value as the price a knowledgeable buyer and willing seller would agree to in an arm’s-length sale; requires consideration of the income approach for income-producing property where data are available.
• OCGA § 48-5-2(3)(B)(vi): For Section 42 properties, assessors must consider rent limitations, higher operating costs from regulatory requirements, and other restrictions tied to credit eligibility.
• OCGA § 48-5-2(3)(B)(vii)(II): The centerpiece. When using the income approach, LIHTCs “may be considered” in determining fair market value “provided that such income tax credits generate actual income to the record holder of title to the property.”
• OCGA § 48-5-2(3)(B)(viii): Directs consideration of other legally provided factors pertinent to fair market value.
• OCGA § 48-5-269.1 and Ga. Comp. R. & Regs. r. 560-11-10-.01, -10-.09: The Department of Revenue’s Appraisal Procedures Manual and the real property appraisal rule. They require use of generally accepted appraisal practices and allow assessors to select among the sales comparison, cost, and income approaches (or combinations) to ensure conformity to the fair market value definition. They also mandate a “correlation” step—reconciling approaches and making adjustments for “unusual circumstances.”
• Georgia Constitution, Art. VII, Sec. I, Par. III(a) (Uniformity Clause): All taxation must be uniform upon the same class of subjects. This constitutional rule forbids creating a special, preferred subclass that masks true fair market value.

Legal Reasoning

The Court’s reasoning proceeds in three steps: statutory text, correction of the misreading in Freedom Heights, and constitutional consistency.

1. Plain text controls: a “how,” not a “whether,” limitation.
   OCGA § 48-5-2(3)(B)(vii)(II) speaks to what may be considered “under the income approach,” not to whether the income approach may be used. The statute allows LIHTCs to be considered within that approach only if they generate “actual income” to the record title holder. Because current LIHTCs reduce tax liability rather than producing cash flows, they do not constitute “actual income” and therefore cannot be included in the income stream for capitalization. But nothing in the statute disables the income approach itself for LIHTC properties.
2. Correcting the Court of Appeals’ overbreadth.
   The Court of Appeals read isolated phrases in Heron Lake Two (“limit[s] the applicability of the income approach,” “narrow range of potential applications”) to mean assessors cannot use the income approach at all for LIHTC properties today. The Supreme Court explains those phrases in context: the limitation is about counting credits as income within the approach. Assessors remain free to use the income approach based on restricted rents and ordinary income/expense data; they just cannot insert LIHTCs into the income stream unless the credits actually produce income to the titleholder.
3. Constitutional harmony: no unlawful subclassing.
   Unlike the categorical bar struck down in Heron Lake One, the current statute does not prohibit consideration of LIHTCs’ effect on value; it merely channels how they may be considered under the income approach. LIHTCs’ value effects can still be reflected via other approaches (e.g., sales of comparable LIHTC properties) and through the appraisal rules’ correlation and adjustment steps. Because the statute does not create a preferred subclass immune from consideration of value-affecting attributes, it does not violate the uniformity clause.

Practical Impact

This decision meaningfully realigns Georgia valuation practice for affordable housing:

• Income approach is back on the table statewide for LIHTC properties. Assessors must consider the income approach for income-producing properties when data are available. For LIHTC properties, that typically means using restricted contract rents, realistic vacancy and collection losses, and stabilized operating expenses, all reflecting regulatory constraints.
• No credit-stream inflation of NOI. LIHTCs cannot be treated as “income” within the income approach unless they generate “actual income” to the record title holder. As federal LIHTCs are presently structured (nonrefundable, generally nontransferable at the property-entity level), they reduce an investor’s tax liability rather than paying cash to the owner; they therefore do not belong in net operating income (NOI) for capitalization.
• But LIHTCs’ value effects are not ignored. LIHTC restrictions depress potential gross income, elevate compliance costs, and affect risk; conversely, the presence of a credit-regulated tenant base and predictable restricted rents may affect perceived risk and marketability. These realities are reflected by:
  • Statutory mandates to consider rent caps and regulatory costs (OCGA § 48-5-2(3)(B)(vi));
  • Sales comparison evidence from comparable LIHTC transactions (which already embed the market’s view of the credit/restriction package);
  • The regulatory “correlation” and “unusual circumstances” adjustments under the DOR appraisal rules to ensure the final value conforms to fair market value.
• Consistency and predictability. By overruling Freedom Heights, the Court eliminates a categorical, approach-level prohibition that had begun to produce inconsistent county practices. The decision harmonizes statutory directives to consider the income approach with LIHTC-specific constraints.
• Future-proofing. The Court emphasizes that if LIHTCs ever “generate actual income” to the record title holder—e.g., if statutes or program structures change to make credits refundable in cash to the owner, or lawfully transferable for cash proceeds to the titled owner—those cash flows may then be included in the income approach.
• Litigation focus shifts. Expect disputes to center on:
  • What counts as “actual income to the record holder” in complex partnership and syndication structures;
  • Selection of capitalization rates appropriate for restricted affordable housing;
  • Choice and weighting of approaches at the correlation stage;
  • Quality and comparability of LIHTC sales data versus conventional sales.

Complex Concepts Simplified

• LIHTCs (Section 42 tax credits): A federal program giving owners tax credits for committing to rent units to income-qualified tenants at below-market rents. Credits reduce the owner’s (or investor’s) federal tax liability over a 10-year credit period. They typically do not pay cash to the owner.
• Fair Market Value (FMV): The price a knowledgeable, willing buyer and seller would agree to in an arm’s-length deal. Georgia law requires property to be assessed at FMV.
• Income Approach: A valuation method where the appraiser estimates FMV by capitalizing or discounting the present value of the property’s expected future income, derived from rents and other actual cash inflows from the property’s use, net of expenses.
• “Actual income” to the record holder: Cash that the titled owner actually receives. A reduction in tax payments owed (from tax credits) is not “income”; it is a tax benefit. Unless credits are structured to put cash in the owner’s hands, they are not “actual income.”
• Appraisal Approaches:
  • Sales Comparison: Compare recent sales of similar properties and adjust for differences.
  • Cost Approach: Estimate the cost to build new, subtract depreciation, add land value.
  • Income Approach: Capitalize the property’s net operating income into a value estimate.
  Assessors may use one or more, then reconcile them to a final opinion of value.
• Uniformity Clause: A constitutional rule requiring uniform taxation within a class of property. Laws that artificially shield a subclass of properties from consideration of value-driving attributes can violate this principle.
• Correlation and “Unusual Circumstances” Adjustments: After applying relevant approaches, the assessor reconciles results and may adjust to account for factors not captured by the standard methods, ensuring the final value reflects the statutory definition of fair market value.

How Assessors Should Apply This Decision

The opinion effectively sets out a compliant valuation playbook for LIHTC properties:

1. Gather reliable data. Obtain restricted rent schedules, regulatory agreements, utility allowances, historical operating statements, vacancy/collection loss data, and compliance cost profiles.
2. Apply the income approach when data are available. Build NOI using restricted rents, market-consistent vacancy and expense ratios, and known higher operating costs arising from compliance and regulation. Do not insert LIHTC credits as revenue unless they generate actual cash income to the titled owner.
3. Consider sales comparison. Use sales of comparable LIHTC properties where available. Such sales naturally capture market perceptions of restrictions and any embedded benefits; adjust for differences in location, age, program terms, remaining compliance periods, and rent ceilings.
4. Evaluate the cost approach where appropriate. Particularly for newer assets or in data-poor markets, the cost approach can offer a check, with careful treatment of functional and external obsolescence from rent caps and regulatory burdens.
5. Correlate and adjust. Reconcile the approaches under DOR Rule 560-11-10-.09(5). If any “unusual circumstances” (e.g., atypical compliance costs, mid-stream re-syndication impacts, or atypical financing covenants) are not captured, adjust to ensure the final opinion aligns with the statutory FMV definition.
6. Document “actual income” if claimed. If an assessor proposes to count some credit-related cash flow as income, the record must show that the credit structure generates actual cash income to the record title holder, not merely tax savings to an investor or partner.

What the Court Did Not Decide

• The Court did not mandate exclusive use of the income approach; it remains one tool among several, to be considered when data are available.
• The Court did not specify capitalization rates or underwriting conventions; those remain matters for appraisal judgment subject to evidentiary proof and cross-examination.
• The Court did not foreclose the possibility that future statutory or program changes (e.g., refundable or transferable credits producing cash to the titled owner) could render LIHTCs “actual income” within the income approach.

Conclusion

Gateway Pines restores doctrinal clarity and practical balance to the valuation of LIHTC properties in Georgia. The income approach is permissible—and, where data exist, expected—for income-producing affordable housing. Yet LIHTCs themselves cannot be smuggled into the NOI unless they produce actual cash income to the record title holder, consistent with the statute’s plain text. By correcting the Court of Appeals’ overbroad reading and overruling Freedom Heights, the Supreme Court harmonizes statutory mandates, appraisal practice, and constitutional uniformity.

The decision’s lasting significance lies in two principles:

• Textual fidelity: OCGA § 48-5-2(3)(B)(vii)(II) limits inputs within the income approach; it does not abolish the approach for LIHTC properties.
• Holistic appraisal: LIHTCs’ economic effects can and should be reflected through appropriate approaches and reconciliation steps to achieve fair market value, without artificially inflating NOI with non-cash tax benefits.

Going forward, assessors, taxpayers, and courts have a clearer roadmap: value the real estate as it operates under LIHTC constraints, use the income approach properly, leverage comparable sales when available, and reconcile results to the statutory fair market value standard—all while treating LIHTCs as income only if and when they actually put cash in the owner’s pocket.