What OBBBA is and why it matters
The One Big Beautiful Bill Act of 2025 (P.L. 119-21), signed by President Trump on July 4, 2025, is the most consequential affordable-housing-tax-policy legislation since the Tax Reform Act of 1986. Three statutory changes are material to practitioners: a permanent 12% increase to the Low-Income Housing Tax Credit per-capita ceiling; a permanent reduction of the tax-exempt private activity bond "financed-by" test from 50% to 25% for bonds issued after December 31, 2025; and the permanent extension of Opportunity Zone designations with new Rural OZ provisions. OBBBA also made smaller adjustments to the New Markets Tax Credit, the Historic Tax Credit, and certain energy credits relevant to affordable housing developers.
Most OBBBA provisions take effect January 1, 2026. The bond financed-by test reduction applies to private activity bonds issued after December 31, 2025; the LIHTC per-capita ceiling increase applies to allocations in calendar year 2026 and later; OZ provisions extend the existing OZ framework from its statutory 2026 expiration into permanence. This page is the practitioner-facing summary of what changed, what stayed the same, and what to do differently as a result.
The permanent 12% LIHTC per-capita increase
OBBBA permanently amended IRC § 42(h)(3)(C) — the LIHTC per-capita ceiling provision — to add a 12% increase to the per-capita multiplier and the small-state floor. Prior to OBBBA, the per-capita multiplier was $2.75 (set in IRC § 42(h)(3)(C) and indexed for inflation under Revenue Procedure annual cost-of-living adjustments). For calendar year 2026, the OBBBA-amended multiplier is $3.416 per Revenue Procedure 2025-32 — a 12% real increase above the prior-law inflation-adjusted baseline. The small-state floor for 2026 is $3,953,600, also reflecting the 12% increase.
Practitioner implication. Every state's 2026 9% LIHTC ceiling increases by approximately 12% above what it would have been under prior law. A 10-million-population state that would have had a $30.5 million ceiling under prior law has a $34.2 million ceiling in 2026. This is permanent — not a one-time bump, not a temporary increase, not a sunset provision. The 12% increase compounds with normal inflation adjustments in future years.
The 25% bond financed-by test
IRC § 42(h)(4) provides that a building qualifies for 4% LIHTC "without regard to" the 9% volume cap if it is "financed by" tax-exempt private activity bonds subject to the bond volume cap. Under prior law, "financed by" required that 50% or more of the aggregate basis of the building and land be financed with the proceeds of tax-exempt bonds.
OBBBA reduced this threshold permanently to 25% for bonds issued after December 31, 2025. There is one additional structural requirement: at least 5% of the building's aggregate basis must be financed by bonds issued after December 31, 2025 (so the threshold change cannot be retroactively gamed using pre-2026 bond issuances). The 5% rule prevents pre-existing pre-2026 bond financings from automatically dropping under the new 25% threshold without any new post-2026 bond issuance.
Practitioner implication. This is the most consequential single change OBBBA made to the affordable housing capital stack. Cutting the financed-by threshold in half effectively doubles the addressable universe of 4% LIHTC + bond deals that can be financed with a given state PAB volume cap allocation. State HFAs that had been turning away qualifying 4% applications for lack of bond volume cap will be able to allocate to more deals. Deal sponsors that previously needed to oversize bond issuances purely to hit the 50% test can now right-size bonds to actual project capital needs — reducing issuance costs, MIP charges (on FHA-insured bonds), and negative arbitrage.
Permanent Opportunity Zones with Rural OZ
OBBBA made the Opportunity Zone program permanent. Under prior law, the 2017 Tax Cuts and Jobs Act established OZs with two material expiration dates: the deferral benefit could only be claimed for capital gains invested by December 31, 2026, and the 10-year basis step-up exclusion required a 10-year hold from investment date. OBBBA eliminated the 2026 sunset on new OZ investments, allowing fresh capital gains to be invested in QOFs on a rolling basis indefinitely, with the 10-year hold clock continuing to run from each investment.
OBBBA also introduced a permanent Rural OZ designation framework, recognizing the meaningful empirical evidence that rural OZs have lagged urban OZs in capital attraction. Rural OZs receive enhanced benefits — the specific structure is governed by IRS guidance issued under the OBBBA-amended IRC § 1400Z-1 and -2. Practitioners working on rural OZ deals should consult the most recent IRS guidance for current Rural OZ designation criteria and benefit-enhancement provisions.
Other OBBBA provisions
OBBBA contains additional provisions of secondary importance to affordable housing practitioners:
- NMTC permanence. The New Markets Tax Credit, which had been authorized in temporary appropriations rounds, was made permanent under OBBBA with annual allocation authority continuing.
- HTC unchanged. OBBBA made no direct amendments to IRC § 47 (Historic Tax Credit). The 5-year ratable claim schedule established by TCJA remains in effect.
- 100% bonus depreciation restored. OBBBA restored 100% bonus depreciation under IRC § 168(k) for qualified property placed in service after January 19, 2025. For LIHTC investors using cost-segregation studies, this front-loads tax losses and can enhance equity pricing on tax-credit deals. Subject to binding-contract requirements for property acquired before the OBBBA effective date.
- Energy credits — terminated. OBBBA terminated the Section 45L new energy-efficient home credit for qualified homes acquired after June 30, 2026, and the Section 179D commercial-buildings energy-efficiency deduction for property the construction of which begins after June 30, 2026. Practitioners with energy-efficient projects in the pipeline should review these cutoff dates carefully to confirm eligibility before termination. OBBBA also adjusted the Section 48E clean-electricity investment credit and certain Section 48 energy-investment credit rules.
What OBBBA did not change
OBBBA did not amend the structural LIHTC framework — 9% applicable percentage rules, basis boost provisions (DDA/QCT 130% boost remains), income-averaging election (still available under AHCIA 2018 framework), compliance period (15 years), extended use period (30 years), or the QAP allocation process. It did not change federal supply-side subsidy programs (HOME, HTF, CDBG) and did not amend the McKinney-Vento Act, the Housing Act of 1937, or other rental assistance authorities.
What practitioners should do now
- Re-size 4% bond deals. For deals applying for bonds in 2026 and later, the 25% test allows substantially smaller bond issuances. Re-run sizing analyses on early-stage deals to capture savings.
- Re-plan deal flow. State HFAs are recalibrating QAP cycles and PAB allocation to reflect higher deal volume capacity. Practitioners should engage their state HFA's 2026 cycle calendar early.
- Revisit rural deals. Rural OZ provisions may make previously infeasible rural workforce-housing deals viable. Re-screen rural pipeline.
- Confirm 5% rule compliance. Any 4% LIHTC deal seeking to qualify under the 25% test must include at least 5% of aggregate basis financed by post-Dec-31-2025 bonds. Practitioners structuring deals that include carryforward bond cap from prior years should confirm 5% rule compliance with bond counsel.
Sources
- P.L. 119-21, One Big Beautiful Bill Act, enacted July 4, 2025
- IRC § 42(h)(3)(C) and § 42(h)(4) (LIHTC per-capita ceiling and bond financed-by test)
- IRC § 1400Z-1 and § 1400Z-2 (Opportunity Zones)
- IRS Revenue Procedure 2025-32 (2026 LIHTC per-capita multiplier $3.416)
- IRS Revenue Procedure 2025-32 (2026 small-state floor $3,953,600)
- JCT description of OBBBA provisions (forthcoming Bluebook), Joint Committee on Taxation
- Treasury and IRS implementing guidance, ongoing through 2026 and 2027
Disclaimer
OBBBA is implemented through subsequent Treasury and IRS guidance, much of which is still in development as of May 2026. Specific section numbers within OBBBA and references to amended IRC provisions reflect best practitioner understanding as of the current date. Practitioners should consult current Treasury, IRS, and JCT guidance and qualified tax counsel before structuring transactions in reliance on OBBBA-amended provisions. This is educational content and is not legal, tax, or financial advice.