House Tax Bill Would Expand Housing Credit, Lower Bond Financing Test, Facilitate Production in Rural and Native American Areas

This afternoon, the House Ways and Means Committee released text of the tax portion of the major 2025 reconciliation bill Republicans are drafting to enact much of President Trump’s agenda, including extensions of the Tax Cuts and Jobs Act (TCJA) provisions set to expire at the end of 2025, initially enacted in the president’s first term in office. In a major victory for NCSHA and our affordable housing advocacy partners, the bill includes a major expansion of the Low-Income Housing Tax Credit (Housing Credit), incorporating several of the key provisions designed to increase the supply of rental housing from the Affordable Housing Credit Improvement Act. Specifically, the bill would:

• Increase the Housing Credit volume cap for 9 percent properties by 12.5 percent for four years: calendar years 2026, 2027, 2028, and 2029;
• Lower the bond financing threshold to 25 percent for 4 percent Housing Credit properties placed in service after December 31, 2025, so long as the bonds financing the project have an issue date before January 1, 2030; and
• Allow HFAs to provide a basis boost of up to 30 percent for properties located in rural and Native American areas placed in service after December 31, 2025, and before January 1, 2030.

NCSHA and our allies have worked diligently to build support in Congress for these proposals. The Affordable Housing Credit Improvement Act — the standalone legislation that is the basis for the Housing Credit provisions included in the Ways and Means bill — was introduced just last month and already has 131 House and 34 Senate cosponsors, inclusive of the bills’ leads. NCSHA, through its work as co-chair of the ACTION Campaign, also has rallied grassroots supporters to the cause, with more than 2,600 organizations and businesses across the nation calling on Congress to increase Housing Credit resources in a national sign-on letter sent late last week. The ACTION Campaign, in partnership with the National League of Cities, National Association of Counties, and Mayors and CEOs for U.S. Housing Investment, also spearheaded a letter from 130 local government leaders to congressional tax committee leads pressing for the Housing Credit expansion.

Despite earlier concerns that the tax exemption for private activity bonds (PAB), such as Housing Bonds, could be at risk as a potential offset for other tax cuts, the bill does not modify the PAB tax exemption. A preliminary version of the 2017 TCJA would have eliminated the PAB tax exemption. At that time, NCSHA fought hard and eventually succeeded in protecting PABs in the final bill. NCSHA pre-emptively advocated that Congress protect PABs in the bill this year, and we are pleased the bill does not negatively impact states’ ability to issue tax-exempt Housing Bonds or other PABs.

The bill would extend, expand, and reform the Opportunity Zones (OZ) tax incentive, originally enacted in the TCJA. It would wind down initial qualified OZ designations at the end of 2026 and allow for a new round of qualified OZ designations for the years 2027 – 2033 with changes to the definition of rural areas that may be designated as OZs. The bill also modifies the OZ incentive by consolidating basis increases for investments made after 2026, increasing basis in rural OZ areas, changing the rules for treatment of ordinary income, and creating new rules for improvement of existing structures in rural areas. Finally, the bill would impose new annual reporting requirements on qualified opportunity funds and OZ businesses, with penalties for failure to comply with reporting requirements. It is unclear at this time if the Senate parliamentarian will allow OZ reporting requirements to be included in the bill when the Senate acts, as there are strict rules about what is allowed in reconciliation legislation in that chamber. Congress did not include OZ reporting requirements in the TCJA due to reconciliation rules.

As we expected, the bill does not include NCSHA’s other housing tax priorities: enactment of the Neighborhood Homes Investment Act and Affordable Housing Bond Enhancement Act. It also does not extend the New Markets Tax Credit, for which many housing and economic development advocates have been pressing.

The Ways and Means Committee is scheduled to mark up the bill tomorrow afternoon. However, the House is still grappling with how to handle differences between Republican caucus members on the state and local tax deduction, which it hopes to resolve before the full House considers the full reconciliation package on the floor as early as next week. Once the House finishes its work, the Senate will take up the bill and could make further changes. Republican leaders aim to have a final bill to the president for his signature by July 4.