A permanent 12% LIHTC increase starts Jan. 1, 2026, with a $3.05 per-capita multiplier and a permanent 25% bond test for 4% credits. The change aims to unlock stalled projects, support rural and small-state development, and could finance about 1.22 million additional affordable homes over ten years. States are revising 2026 allocation plans while waiting for IRS guidance on implementation details.
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Key takeaways
Congress approved a permanent 12% increase in annual Housing Credit allocation starting January 1, 2026.
Private-activity bond threshold for 4% credits permanently lowered to 25% for bonds issued after Dec 31, 2025.
Novogradac estimates 1.22 million additional affordable homes and $71.4 billion in tax revenue over ten years.
The Internal Revenue Service will boost the supply of affordable rental homes starting in 2026 after Congress passed a sweeping package that permanently expands the Low-Income Housing Tax Credit (LIHTC). The change, included in the One Big Beautiful Bill Act approved in late 2025 and awaiting the President’s signature, delivers a 12% permanent increase in the annual Housing Credit allocation beginning January 1, 2026.
Housing agencies, developers, and local governments say the move will open more deals that stalled in higher-cost markets, while giving small and rural states a modest lift through the yearly population-based formula that sets each state’s ceiling.
12% permanent increase in Housing Credit allocation for calendar year 2026 and after.
Federal per-capita multiplier rises to $3.05 (from $3.00 in 2025) for calculating state ceilings.
Private-activity bond threshold permanently lowered to 25% (from 50%) for bond-financed projects placed in service after December 31, 2025, provided the tax-exempt bonds are issued after that date.
Taken together, these measures are expected to push more projects across the finish line, especially in states that have struggled to pair enough bond volume with 4% credits.
“The bill will provide a permanent 12 percent Housing Credit allocation increase beginning in 2026,” said one summary circulated by national advocacy groups, adding that “the 50 percent bond financing threshold test for the four percent Housing Credit will be lowered to 25 percent permanently.”
Novogradac, a national accounting and advisory firm that tracks the market, estimates: – About 1.22 million additional affordable homes could be financed over the next ten years. – The effort could support 1.83 million jobs. – It could generate $206.6 billion in wages and business income. – It could add $71.4 billion in tax revenue over the decade.
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Immigration Data & Analytics
Report Date
October 30, 2025
Permanent 12% LIHTC Increase & 25% Bond Test: Projected 2026 Impact and State Responses
Source: Congressional One Big Beautiful Bill Act (2025) summary, Novogradac estimates, state housing agency updates. Effective Jan 1, 2026 unless otherwise noted.
Additional Affordable Homes (10-year est.)
1,220,000
Novogradac 10-year estimate
Jobs Supported (10-year est.)
1,830,000
Estimated employment impact
Wages & Business Income (10y)
$206,600,000,000
Estimated economic output
Tax Revenue (10y est.)
$71,400,000,000
Estimated federal & state tax receipts
Jobs per Additional Home (approx.)
1.50
1,830,000 jobs ÷ 1,220,000 homes
Estimated Wages per Job (avg)
$112,900
$206,600,000,000 ÷ 1,830,000 jobs
Estimated Tax Revenue per Home
$58,525
$71,400,000,000 ÷ 1,220,000 homes
Economic & Production Estimates (Novogradac)
Summary of projected outcomes tied to the permanent 12% LIHTC increase and lowered 25% bond threshold.
Metric
Value
Notes
Additional affordable homes (10-year)
1,220,000
Novogradac projection over 10 years
Jobs supported (10-year)
1,830,000
Includes direct, indirect, induced employment
Wages & business income (10-year)
$206,600,000,000
Economic output tied to production and operations
Tax revenue (10-year)
$71,400,000,000
Federal and state revenue effects
Derived metrics (averages)
Jobs/home: 1.50 • Wages/job: $112,900
← Scroll horizontally to view all columns →
Policy Details & Implementation Timeline
Key provisions, effective dates, and implementation questions for agencies and developers.
Provision
Effective Date
Impact
Notes / Implementation Questions
State planning and allocation impacts
State housing finance agencies are already modeling how the expansion will flow through their 2026 Qualified Allocation Plans (QAPs). Because the 12% increase is permanent, agencies can plan multi-year pipelines with more certainty rather than rely on temporary boosts that expire and cause whiplash in deal flow.
💡 Tip
Start early: if you’re a state agency or developer, begin mapping 2026 pipelines now, using the permanent 12% increase and 25% bond test to structure multi-year awards.
Example: If a state’s 2025 ceiling was $100 million, the 2026 ceiling would be $112 million under the new level, plus any additional amount tied to the per-capita calculation and small-state minimum.
Agencies report permanent authority helps them structure awards over several years and keep projects on schedule, while cushioning construction cost spikes.
State-level complements and examples
Some states are expanding production on their own, which can complement the federal lift: – Arizona is increasing its annual state LIHTC award limits from $4 million to $8 million starting in 2025, with extensions planned through 2031.
State-level actions can: – Stretch deeper affordability, – Support rural projects that often require more subsidy per unit, – Combine with the federal change to free up private-activity bond capacity in states with tight bond caps.
Developer and project-level effects
The lowered 25% bond test can rebalance deals previously barely feasible at a 50% requirement.
Benefits for developers and projects: – Need fewer bonds to unlock 4% credits, allowing smaller bond issues that still meet the test. – Narrow financing gaps and reduce interest costs by avoiding over-issuing bonds. – Enable more family and supportive housing deals that had been shelved. – Help preserve affordable properties with expiring restrictions or rising capital needs.
“That 25 percent threshold is a game changer in bond-constrained states,” said a Midwest developer with several 4% transactions queued for 2026 closings.
Administrative guidance and open questions
Although the law amends section 42 of the Internal Revenue Code for years starting after December 31, 2025, the IRS has not yet issued detailed procedural guidance specific to the 2026 changes.
⚠️ Important
Expect ongoing IRS guidance on transitional rules; misapplying 2025 carryovers or mixed-finance timing could delay closings in 2026.
Agencies and investors expect further clarification via notices or revenue procedures that address: – How to apply the new thresholds to mixed-finance transactions. – How to treat projects that straddle the effective dates. – Timing of state competitive rounds to reflect larger 2026 ceilings. – Interaction between carryover allocations from 2025 and the new permanent levels.
The statute is clear that both the 12% allocation increase and the 25% bond test take effect for calendar year 2026, giving a predictable start date for planning. Officials anticipate administrative updates later in the year or early next year.
For background on the LIHTC program and official guidance, stakeholders can refer to the IRS’s Low-Income Housing Credit page at IRS Low-Income Housing Credit.
Political support and remaining policy proposals
The Affordable Housing Tax Credit Coalition welcomed the bipartisan path that produced the provisions, highlighting support from lawmakers including: – Senators Todd Young (IN) and Mike Crapo (ID) – Representatives Darin LaHood (IL) and Jason Smith (MO)
Policy groups note additional reforms remain under consideration but did not make the final measure. For example, BPC Action has proposed: – Exempting certain LIHTC projects from duplicative federal reviews, and – Adjusting federal wage rules for narrowly defined project types to reduce costs and speed delivery while maintaining worker protections.
Supporters hope the 2026 expansion sets the stage for continued reform.
Local government, nonprofit, and tenant implications
Local governments and sponsors are adjusting pipeline expectations and timing: – Cities may revive stalled proposals or move forward on larger mixed-income sites that reserve more units for extremely low-income households. – Housing authorities and nonprofit sponsors say expanded LIHTC paired with operating support can support deeper rent targeting. – Stakeholders are preparing for a heavier 2026 application season, coordinating early with state agencies on site control, zoning, and environmental approvals.
The human stakes are high: – Renters face rising costs and long waiting lists. – LIHTC remains the main driver of affordable rental production in the United States 🇺🇸. – While the increase won’t solve land use barriers or labor shortages, it raises the equity each project can raise, helping close gaps created by inflation, higher interest rates, and supply chain pressures. – Without steady credits, deals can collapse and land options lapse, pushing families further from work, school, and care.
Investor and market dynamics
Investors and syndicators are recalibrating for 2026 allocations: – More 9% credits in the market and a friendlier 4% bond test could shift equity pricing and demand dynamics, especially in secondary markets. – A broader investor base may return as the pipeline grows and underwriting stabilizes. – Construction and insurance costs remain unpredictable; often extra credits will offset budget stress rather than directly increase unit counts.
Consensus: A permanent, statutory 12% increase is preferable to short-term boosts that expire before projects reach closing.
Per-capita multiplier and inflation adjustment
For states balancing population growth and rising rents: – The $3.05 per-capita multiplier inches ceilings upward, though this change is modest on its own. – The OB BBA also amends the inflation component tied to state housing credit ceilings after 2025, but federal documents to date do not specify a new formula. – State officials will watch for IRS detail on how the inflation adjustment will apply in 2026 and later years and will fold known increases into draft allocation plans and underwriting guidelines.
Transitional issues to watch
Market participants expect IRS guidance on transitional matters, including: 1. How mixed developments receiving bonds across 2025 and 2026 demonstrate compliance with the 25% test when placed in service after the effective date. 2. How states time competitive rounds to reflect the larger 2026 ceiling. 3. How carryover allocations from 2025 interact with the new permanent levels.
The IRS is expected to address these through interim notices or updates to existing section 42 guidance.
Next steps and enactment
As of October 30, 2025, the bill had cleared Congress and was awaiting the President’s signature, with supporters confident about swift action. Once signed, the changes become law and states and cities will have a clear runway to expand their 2026 Housing Credit calendars.
Developers plan to move quickly to: – Assemble sites, – Finalize capital stacks, – Line up contractors to capture expanded allocations.
For tenants, allocation-to-opening timelines remain long, but the 2026 expansion marks a durable commitment: a permanent lift in the LIHTC that can finance more homes, preserve affordability, and give local partners a better chance to match the scale of housing need.
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Learn Today
LIHTC → Low-Income Housing Tax Credit, a federal tax incentive that finances affordable rental housing development.
4% credits → A category of LIHTC typically paired with tax-exempt bonds to provide lower credit rates for projects.
Private-activity bond test → A threshold determining how much tax-exempt bond financing a project needs to qualify for 4% credits.
Qualified Allocation Plan (QAP) → A state plan that sets priorities and rules for awarding Housing Credits within that state.
This Article in a Nutshell
The One Big Beautiful Bill Act, cleared by Congress and awaiting the President’s signature, permanently raises the annual Housing Credit allocation by 12% beginning January 1, 2026. The per-capita multiplier increases to $3.05 and the private-activity bond threshold for 4% credits is permanently lowered to 25% for bonds issued after Dec. 31, 2025. Industry groups expect this to unlock stalled projects, enable more rural and small-state production, finance roughly 1.22 million additional homes over ten years, and generate significant jobs and revenue. States are updating 2026 QAPs while awaiting IRS procedural guidance.
As the Chief Editor at VisaVerge.com, Oliver Mercer is instrumental in steering the website's focus on immigration, visa, and travel news. His role encompasses curating and editing content, guiding a team of writers, and ensuring factual accuracy and relevance in every article. Under Oliver's leadership, VisaVerge.com has become a go-to source for clear, comprehensive, and up-to-date information, helping readers navigate the complexities of global immigration and travel with confidence and ease.
