One Small Beautiful Synopsis of the One Big Beautiful Bill’s Tax Credit Expansions

President Trump signed into law The One Big Beautiful Bill (the Bill) on July 4^th, 2025, making a multitude of historic tax changes, amongst other things. Specifically, the Bill creates and expands certain tax credit programs and incentives for Low-Income Housing Tax Credits, New Market Tax Credits and bonus depreciation.

Key Highlights:

• Permanent changes and expansions to Low-Income Housing Tax Credit (LIHTC)
• New Markets Tax Credit (NMTC) program is here to stay
• Increased Bonus Depreciation cap back to 100%

LIHTC Permanent Expansions:

The Bill changes the LIHTC program in two significant ways:

1. For 4% LIHTC, the Private Activity Bond (PAB) financing threshold is permanently lowered from 50% to 25% for land and building costs of properties that are placed in service after December 31, 2025. However, there is a threshold test for this provision to apply. The threshold test requires that at least 5% of the overall land and building costs be financed with PABs that are issued after December 31, 2025. Additionally, even if the land and building costs do not qualify, the acquisition and rehabilitation of property can separately qualify, meaning that any rehabilitation portion placed in service in 2026 or later can still qualify for the 25% test even if the property was acquired in 2025.
2. Beginning in 2026, the total amount of 9% LIHTC credits available will be increased by 12%, providing more funding for affordable housing nationwide.

NMTC Program

Originally scheduled to sunset on December 31, 2025, the Bill ensures that the NMTC program is here to stay permanently with an annual allocation of $5 billion. It should be noted that the Bill is silent on the yearly $5 billion allocation being adjusted annually for inflation. And the Bill does not include the ability to take the NMTC against alternative minimum tax liability.

The Bill did not provide any other significant program changes.

Bonus Content! 100% Bonus Depreciation

For property acquired and placed in service on or after January 19, 2025, the Bill adjusts the maximum Bonus Depreciation percentage cap back to 100% (currently at 40% for 2025).

While not just a part of the tax credit world, a higher percentage allowed for Bonus Depreciation does affect developers and investors positively by making LIHTC and NMTC projects more attractive as the depreciation can bridge certain capital stack gaps as well as boost overall project after-tax returns.