The One Big Beautiful Bill Act (the “OBBBA”) preserves the federal tax exemption for all municipal bonds, including both governmental purpose and qualified private activity bonds, which state and local governments rely on to finance various transportation, housing, energy, and water projects. In addition, the OBBBA includes the following modifications of current law relating to municipal bonds.
- 4% LIHTC – 25% Test. The OBBBA reduces the threshold required for 4% low-income housing tax credits (LIHTC) buildings financed with private activity bond volume cap tax-exempt bonds from 50% to 25% on an aggregate basis. The reduced threshold applies to buildings placed in service after December 31, 2025, so long as at least five percent of the aggregate basis of the building and land is financed with bonds issued after December 31, 2025. The OBBBA made this a permanent reduction to the aggregate basis test.
- Spaceport Bonds. The OBBBA created a new category of exempt facility bonds for “spaceports.” The definition of qualified private activity bonds was expanded to include spaceports and related manufacturing facilities, potentially allowing the financing of infrastructure projects related to aerospace and related industries. Spaceports are treated like airports under exempt-facility bond rules.
- Qualified Small Issue Bonds. The OBBBA modifies the calculation of research and development expenditures for purposes of qualified small issue bonds.
