On July 4, 2025, President Trump signed the bill known as H.R.1 into law. This bill contains many tax provisions that will impact the American taxpayer. In this alert, our BRC Tax Professionals, will provide an overview of the most relevant provisions affecting the affordable housing industry and the impact they may have on you and your business.
- IRC §42 provides the low-income housing tax credit (LIHTC) to encourage the construction and rehabilitation of affordable housing.
- Each state receives an annual allocation of LIHTC, known as the state housing credit ceiling.
- The new bill permanently increases the annual 9% LIHTC allocations by 12%.
- This provision will increase the amount of LIHTC available for allocation by state housing credit agencies, potentially leading to more affordable housing development.
Effective Date: Applies to tax years beginning after December 31, 2025.
- IRC §42 provides the low-income housing tax credit (LIHTC) to encourage the construction and rehabilitation of affordable housing.
- Private Activity Bonds (PABs), when used to finance affordable housing, can be paired with 4% LIHTCs.
- Historically, to qualify for the full 4% LIHTC, at least 50% of a project’s aggregate basis (land and building costs) had to be financed with PABs – commonly known as the “50% test”.
- The new bill permanently reduces this threshold to 25%, applicable to properties placed in service after December 31, 2025, provided that at least 5% of the aggregate basis is financed with PABs issued after that date.
- Lowering of the threshold to 25% will reduce the amount of bond financing required per project, helping states preserve more of their PAB volume cap and extend support to a greater number of affordable housing developments.
Effective Date: Applies to buildings placed in service in taxable years beginning after December 31, 2025.
Note: The provisions discussed within this alert are federal tax provisions. The various state taxing authorities may or may not conform to these newly enacted federal provisions.
If you have any questions about how this impacts you or your business, please don’t hesitate to reach out to your trusted BRC tax advisor.
To read other alerts associated with the passing of this bill, click here.