Introduction
On July 3, 2025, the United States House of Representatives passed the final version of the One Big Beautiful Bill Act (the “Act”), which was subsequently signed into law by the President on July 4, 2025. The final version of the Act contains certain provisions affecting the low-income housing tax credit (LIHTC) and new markets tax credit (NMTC) incentives. Notably, the Act creates permanent LIHTC expansion, as well as permanent NMTC and opportunity zone (OZ) incentives. Projections suggest that this reform will lead to an expansion of affordable units and an increase in overall production in the affordable housing industry.
Permanent LIHTC Expansions
The new LIHTC expansions in the Act implement a permanent 25% test, lowering the threshold for private activity bond financing from 50% of land and building costs to only 25% of those costs. This permanent test will apply to properties placed in service after December 31, 2025, as long as at least 5% of the aggregate land and building costs are financed with private activity bonds issued after December 31, 2025. Industry leaders suggest that this decrease will result in a large expansion of affordable units. Indeed, this permanent 25% test could finance more than one million affordable rental homes between 2026-2035.
Originally posed as a temporary 12.5% increase in 9% allocations in previous iterations of the bill, the Act also employs a permanent 12% increase in the 9% allocations for LIHTC, beginning in calendar year 2026. Novogradac estimates that this increase in allocations could finance 80,000 additional affordable rentals between 2026-2035. Overall, this reform provides developers with increased opportunities to earn 9% credits.
NMTC and OZ Incentive Reform
The Act also alters the NMTC and OZ incentives. Although it was left out of the initial House reconciliation bill, the NMTC receives a permanent extension through the Act, with $5 billion in annual allocation authority. The Act also makes the OZ incentive an indefinite part of the Internal Revenue Code, repealing the previous December 31, 2028 sunset deadline to allow designation of new zones beginning in January 2027. Further, new OZs will now be designated every ten years. The Act updates the requirements for qualifying census tracts under the OZ program, narrowing the definition of low-income community from 80% to 70% of the area median income and removing contiguous tracks from eligibility.
Taken together, many consider the LIHTC reform in the Act as a victory for the affordable housing industry. The LIHTC expansions and permanent NMTC and OZ incentives create a long-sought after expansion of the LIHTC program that is projected to increase production and financing opportunities for affordable projects across the next decade.
