The passage of H.R. 1, Republicans’ “One Big Beautiful Bill,” on July 4, 2025, marks a pivotal moment for the Low-Income Housing Tax Credit (LIHTC) program. As the nation’s most significant tool for incentivizing affordable housing development, LIHTC plays a critical role in addressing housing insecurity and revitalizing underserved communities. The final reconciliation bill introduces targeted enhancements to the program that are poised to expand its reach and impact.
For a comprehensive overview of all tax provisions in the 2025 Final Budget Reconciliation Bill, refer to this in-depth article.
As the reconciliation bill ushers in significant tax policy changes, real estate and construction professionals can’t afford to fall behind. Join Cherry Bekaert’s CPE-eligible webinar series, Tax Horizons: Planning Ahead After the Reconciliation Bill, for industry-specific insights and actionable strategies to navigate what’s ahead.
Permanent Increase to LIHTC State Credit Caps Expands Affordable Housing Potential
One of the most consequential changes is the permanent 12% increase to the state housing credit ceiling for the 9% LIHTC allocations beginning in 2026. This expansion provides states with greater capacity to allocate credits to qualifying projects, which is expected to stimulate a measurable uptick in affordable housing projects nationwide.
Industry Impact
- Developers will benefit from a more predictable and robust pipeline of credit availability, enabling them to plan and finance projects with greater confidence.
- Investors may see increased deal flow and improved syndication opportunities, particularly in high-demand urban and suburban markets.
- State housing agencies will have more flexibility to support a broader range of developments, including those in rural or transitional areas that previously struggled to compete for limited allocations.
Reduced Private Activity Bond Threshold Broadens Access to 4% LIHTC
The bill also lowers the private activity bond (PAB) financing threshold from 50% to 25% for properties placed in service after December 31, 2025. The PAB financing threshold represents the minimum amount of aggregate basis (land and building costs) that is required to be funded with PAB financing. This change from 50% to 25% significantly reduces the amount of tax-exempt bond financing a project must secure to qualify for the 4% LIHTC.
Industry Impact
- Mixed-income and preservation projects that previously fell short of the 50% test may now qualify, unlocking new opportunities for rehabilitation and adaptive reuse.
- Public-private partnerships could become more viable, as the reduced threshold makes it easier to layer LIHTC with other funding sources.
- Local governments and housing authorities may find it easier to support projects that align with community development goals but were previously financially infeasible.
Key Planning Strategies for Developers, Investors and Housing Agencies
With these enhancements, stakeholders across the affordable housing ecosystem should consider the following:
- Developers should revisit stalled or shelved projects that may now qualify under the new PAB threshold and expanded credit ceiling.
- Investors and syndicators should prepare for increased competition and pricing variability as more projects enter the pipeline.
- Policy advocates may leverage these changes to push for complementary reforms at the state and local levels, such as zoning flexibility or expedited permitting for LIHTC-supported developments.
How LIHTC Enhancements Fit Into the 2025 Tax Reform Landscape
These LIHTC changes are part of a broader legislative package that includes reforms to opportunity zones, permanent authorization of the New Markets Tax Credit (at $5B annual level), permanent extension of 100% bonus depreciation, and significant shifts in energy and business tax policy. Together, they signal a renewed federal commitment to community development and housing equity, albeit through market-driven mechanisms.
Your Guide Forward
The 2025 tax reform represents a meaningful expansion of the LIHTC program’s capacity to address the nation’s affordable housing crisis. By increasing credit availability and lowering financing barriers, the legislation empowers developers, investors and public agencies to deliver more housing to those who need it most. As implementation begins, stakeholders should act swiftly to align their strategies with the new landscape and capitalize on the expanded potential of LIHTC.
To understand how these changes may affect your pipeline, financing models or investor strategy, connect with a Cherry Bekaert advisor. Our experienced professionals can help you navigate the updated LIHTC framework and identify opportunities to maximize impact and return.
Upcoming Webinars
Please join Cherry Bekaert for our webinar series Tax Horizons: Planning Ahead After the Reconciliation Bill, where we will explore the reconciliation bill in more detail and bring you insights that will help you adjust to changes in the tax landscape.
Sessions:
- August 13: Your Financial Legacy: Key Individual and Estate Tax Shifts
- August 27: Business Tax in Motion: Corporate and PTE Developments
- September 10: New Global Playbook: International Game Changers
- September 24: From Capitol to County: State & Local Tax in Focus
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