In July 2025, Congress passed and President Trump signed the One Big Beautiful Bill Act into law, a sweeping federal tax and spending package that includes historic changes to the Low-Income Housing Tax Credit (LIHTC) program. These updates represent some of the most significant federal support for affordable housing in decades, and they could reshape how deals get financed nationwide.
Permanent Credit Expansion
One of the headline provisions is the permanent increase in 9% LIHTC allocations. The bill boosts the volume of these credits by 12 percent every year beginning in 2026, making more tax credits available to states for allocation to affordable housing projects. This expansion can help close equity gaps and attract additional private capital into deals that previously struggled to pencil.
Lower Bonds Threshold for 4% Credits
The legislation also permanently lowers the private activity bond requirement for 4% LIHTC projects. Historically, projects needed at least 50 percent of their eligible costs financed with tax-exempt bonds to qualify for the 4% credit. The new law reduces that test to 25 percent, making it easier for more multifamily developments to access 4% credits and begin construction without over-reliance on tax-exempt bond issuance.
These two changes are not small tweaks. Affordable housing advocates and industry analysts have described the expansion as the largest LIHTC increase since the program’s creation under the Tax Reform Act of 1986. That could translate into the production or preservation of more affordable rental homes over the next decade, especially in high-cost markets where tax credit financing is essential.
Increased Support from Federal Housing Agencies
Beyond the tax credits themselves, the bill also directs federal housing finance policy toward expanding support for affordable housing. For example, Fannie Mae and Freddie Mac are now able to invest significantly more in LIHTC deals, with combined annual capacity increasing to $4 billion in support reserved for underserved and rural markets.
Taken together, these provisions signal a new era of federal backing for LIHTC projects, lowering barriers to financing while expanding the pipeline of equity available for affordable housing. For developers, investors, and community partners, understanding these changes will be crucial as the market adjusts and new deals take shape.
