Senate Tax Bill Makes Permanent Housing Credit Volume Cap Increase, 25 Percent Bond Financing Threshold
Late yesterday afternoon, Senate Finance Committee Chairman Mike Crapo (R-ID) released the much-anticipated text of the tax and Medicaid portion of the Senate’s reconciliation bill, with significant differences from the House-passed version of the One Big Beautiful Bill Act. Like the House bill, the Senate text includes a major expansion of Low-Income Housing Tax Credit (Housing Credit) resources, providing a permanent 12 percent increase in Housing Credit authority for the 9 percent program and permanently lowering the bond financing test from 50 to 25 percent. The House bill would increase Housing Credit authority by 12.5 percent and lower the bond financing test to 25 percent, but in both instances those changes would be applicable for just four years. The Senate bill does not include new basis boosts for properties in rural and Native American communities, as is included in the House-passed bill.
Other highlights of the Senate tax language include permanency for 100 percent bonus depreciation for certain qualifying properties, while the House bill would provide 100 percent bonus depreciation for those properties only through 2029. Bonus depreciation would help Housing Credit investor yields, potentially boosting pricing.
Both the Senate and House bills extend and reform the Opportunity Zone (OZ) tax incentive, but the Senate’s bill would do so permanently, while the House bill would provide just a second round of OZs that would expire after 2033. Both versions enact reporting requirements for Opportunity Zones; however, reporting requirements were removed from the 2017 Tax Cuts and Jobs Act, which initially established the OZ incentive because the language did not comply with Senate rules for reconciliation bills per the parliamentarian. It remains to be seen whether such requirements are written in a manner that would allow them to remain in the bill this time.
The Senate bill also permanently extends the New Markets Tax Credit (NMTC) program, currently set to expire at the end of 2025. The House bill does not include a NMTC extension. Like the House bill, the Senate bill would accelerate the phase-out and termination of clean energy tax credits implemented in the Inflation Reduction Act but more slowly than the phase-out schedule in the House-passed bill.
The bill is likely to meet headwinds moving forward, as not all Republicans are pleased with the outcome thus far. The Senate bill includes deeper cuts to Medicaid spending than the House version, angering some Republicans who have raised concerns about the impact on their constituents, while others think the cuts do not go far enough. House fiscal hawks, who had insisted on the expedited end to clean energy tax credits, are unlikely to support the Senate’s longer phase-out of those credits. The Senate bill also maintains the cap on state and local tax (SALT) deduction at $10,000 — the same as current law — while House leaders had reached a deal with SALT caucus Republicans to raise that cap to $40,000 in one of the most fraught aspects of negotiation on the House bill. Those SALT caucus members are unlikely to support a bill that does not adhere to the deal they negotiated.
Republican congressional leaders have very little negotiation time if they are to meet their deadline of having a final bill to President Trump for his signature by July 4. Given the complexity of the negotiations ahead, it is very possible the timeline will slip. The true deadline for the bill is the “X-date” after which the Treasury Department will no longer be able to use extraordinary measures to avoid hitting the debt limit. Both the House and Senate bills would raise the debt limit, by $4 trillion and $5 trillion, respectively. Treasury Secretary Scott Bessent has told Congress he expects the X-date to occur sometime in August.
Neither the House nor Senate bill would make changes to the tax exemption for private activity bonds and neither includes NCSHA homeownership priorities such as Mortgage Revenue Bond and Mortgage Credit Certificate improvements from the Affordable Housing Bond Enhancement Act and enactment of the Neighborhood Homes Investment Act.
For more information about the Senate tax text, see the Finance Committee-released section-by-section and bill overview.
