Federal Reconciliation Bill Includes Key Affordable Housing Provisions

In late May, the House of Representatives passed budget reconciliation tax legislation that includes key bipartisan low-income housing tax credit (LIHTC) provisions, which would expand the program. The bill is now in the Senate. Congress is currently attempting to pass an FY 25 budget through the reconciliation process, which enables major tax-and-spending legislation to be fast-tracked and bypass the Senate’s 60-vote filibuster rule with a simple majority.

The sweeping tax and spending “Big Beautiful Bill” passed by a single-vote margin, potentially adds $3.8T in debt over the next decade, cuts Medicaid, and extends tax cuts from the previous Trump administration. If the LIHTC provisions remain in the bill, they promise to boost affordable housing in urban, rural, and tribal areas.

The final version of the House bill includes the following four low-income housing tax credit (LIHTC) provisions effective over 2026-2029:

• A reduction in the 50% financed-by test for housing financed by private activity bonds to 25%, enabling states to use their bond authority more effectively
• A restoration of the 12.5% increase in 9% LIHTC allocations that expired in 2021, allowing more affordable housing production and preservation
• An up to 30% basis boost for properties in rural areas
• An up to 30% basis boost for properties in tribal communities

These provisions could boost affordable housing production and preservation by at least 1.3M homes over 2025-34. The bill, unfortunately, does not include provisions from the Neighborhood Homes Investment Act, which proposes a new federal tax credit that would build and rehabilitate homes for lower- and middle-income homeowners. The bill additionally weakens clean electricity investment and production tax credits.