What OBBBA is and why it matters
The One Big Beautiful Bill Act of 2025, 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 second pathway to the tax-exempt private activity bond "financed-by" test — for buildings placed in service in taxable years beginning after December 31, 2025, a building qualifies if either (A) at least 50% of aggregate basis (building + land) is bond-financed (any issue date), or (B) at least 25% is bond-financed and at least 5% of aggregate basis is financed by bonds issued after December 31, 2025; and a permanent Opportunity Zone regime with decennial redesignations (new zones effective January 1, 2027) and enhanced benefits for rural investments. 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 new 25% bond financed-by alternative applies to buildings placed in service in taxable years beginning after December 31, 2025 (with at least 5% of aggregate basis financed by bonds issued after that date); the LIHTC per-capita ceiling increase applies to allocations in calendar year 2026 and later; OZ provisions replace the original one-time designation framework with a permanent decennial designation cycle (new zones effective January 1, 2027; the 2018 designations still run through December 31, 2028 and were not extended). 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 (§ 70422) permanently added IRC § 42(h)(3)(I), which increases both dollar amounts in § 42(h)(3)(C)(ii) — the per-capita multiplier and the small-state floor — by multiplying them by 1.12 for calendar years beginning after December 31, 2025. The statutory base in § 42(h)(3)(C) is $1.75, indexed for inflation; the 2025 per-capita multiplier was $3.00 (per Revenue Procedure 2024-40). 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 (the pre-OBBBA 2026 rate was $3.05 per capita) has a $34.2 million ceiling in 2026 — a 12.0% increase. 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 new 25% bond financed-by alternative
IRC § 42(h)(4) provides that the state housing credit ceiling in § 42(h)(1) "shall not apply" to credit attributable to eligible basis "financed by" tax-exempt obligations taken into account under the § 146 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 permanently added a second, alternative pathway at 25% for buildings placed in service in taxable years beginning after December 31, 2025; the 50% test remains fully available (§ 42(h)(4)(B)(i), bonds of any issue date). The 25% pathway (§ 42(h)(4)(B)(ii)) carries 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 qualifying under the new 25% pathway without any new post-2026 bond issuance.
Practitioner implication. This is the most consequential single change OBBBA made to the affordable housing capital stack. Adding a 25% pathway alongside the 50% test 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 and rural OZ benefits
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 did not create a separate “Rural OZ” designation category; zones are still designated under § 1400Z-1 as before. Instead, amended § 1400Z-2 gives enhanced treatment to rural investment: a qualified rural opportunity fund (a QOF holding at least 90% of its assets in QOZ property in zones comprised entirely of a rural area) receives a 30% basis step-up after 5 years (vs 10%), and property in rural zones uses a 50% (vs 100%) substantial-improvement test. “Rural area” means anywhere other than a city or town of more than 50,000 inhabitants and its contiguous urbanized area. The rural fund provisions apply to 2018 and new zones alike, for investments made after December 31, 2026.
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 made 100% bonus depreciation permanent under IRC § 168(k) for qualified property acquired after January 19, 2025 (and placed in service thereafter). The controlling test is the acquisition date — property acquired on or before January 19, 2025, including under a written binding contract entered into by that date, does not qualify and remains on the TCJA phase-down (40% for most property placed in service in 2025). Per IRS Notice 2026-11, the prior placed-in-service-date deadline no longer applies. For LIHTC investors using cost-segregation studies on qualifying post-January 19, 2025 acquisitions, this front-loads tax losses and can enhance equity pricing on tax-credit deals.
- 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 (enacted by the Consolidated Appropriations Act of 2018; unchanged by OBBBA), 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 (I) and § 42(h)(4) (LIHTC per-capita ceiling, 12% increase, 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.