H.R. 6900 — American Affordability Act of 2025

This section establishes a new affordable housing conversion credit under new IRC §48F equal to 20% of qualified conversion expenditures (i.e., depreciable capital costs incurred during the 2-year period ending on the date the building is placed in service, excluding acquisition costs) for converting an eligible commercial building (i.e., nonresidential real property placed in service at least 20 years prior) into a qualified affordable housing building, provided such expenditures exceed the greater of 50% of the building's adjusted basis or $100,000. A qualified affordable housing building is a residential building where, for 30 years after placement in service, at least 20% of units are both rent-restricted and reserved for households with income at or below 80% of area median income (using rules similar to the low-income housing tax credit under IRC §42). The aggregate credit for any building is limited to the qualified conversion credit dollar amount allocated by the state housing credit agency, with a national limitation of $12 billion allocated among states based on population share, plus up to an additional $3 billion designated by the Secretary for buildings in economically distressed areas.

This section establishes a new Neighborhood Homes Credit under new IRC §42A (modeled on the low-income housing tax credit) for taxpayers selling qualified residences (i.e., houses with 4 or fewer units, condominiums, or cooperative units located in qualified census tracts) in affordable sales as part of a qualified project allocated by a neighborhood homes credit agency. The credit for each such residence is the lesser of (1) the excess of reasonable development costs (i.e., acquisition, construction, substantial rehabilitation exceeding the greater of $25,000 or 20% of building/land acquisition costs, demolition, or remediation necessary for financial feasibility) over the sale price (net of sales expenses), or up to 120% thereof if needed for feasibility; (2) 40% of eligible development costs (i.e., reasonable development costs excluding more than 75% for building/land acquisition); or (3) 32% of the national median new home sale price. Qualified census tracts include those with median family income not exceeding 80% of area median, poverty rates at least 130% of area rate, and home values not exceeding area medians; tracts in cities of 50,000+ population with elevated city poverty and area-median income/home values; or designated nonmetropolitan tracts with area-median income. (Costs incurred before allocation are excluded except for building/land acquisitions within prior 3 years, subject to related-party limits.)

This section modifies the historic rehabilitation tax credit under IRC §47, which provides a tax credit for qualified rehabilitation expenditures (QRE) on certified historic structures, as follows: (1) revises the general rule to allow the full 20% credit in the taxable year the building is placed in service (previously allowed ratably); (2) establishes an elective 30% credit (instead of 20%) for qualifying small projects (i.e., buildings placed in service after enactment with no prior credit in the two preceding years), capped at $3.75 million in QRE ($5 million for rural areas, defined using Census data as areas other than cities/towns over 50,000 population or contiguous urbanized areas), and permits transfer of the credit (with certification, reporting, no deduction for purchase price, income exclusion for proceeds, and recapture rules treating transferee as taxpayer); (3) limits QRE for certified historic structures to 50% of the building's adjusted basis (from 100%); (4) eliminates the basis reduction under IRC §50(c) for the rehabilitation credit (previously reduced by 100% of credit allowed) and related lessee rules; and (5) limits tax-exempt use property restrictions to leases involving government entities (excluding other tax-exempts from disqualified lease rules). The changes apply to property placed in service after enactment.

This section doubles the maximum exclusion of gain from the sale of a principal residence under IRC §121(b)—to $500,000 (from $250,000) for single filers and to $1,000,000 (from $500,000) for married individuals filing jointly—for sales or exchanges after December 31, 2025. (As background, eligible taxpayers who have owned and used the residence as their principal residence for at least two of the five years preceding the sale may exclude up to these amounts from gross income.) It also requires inflation adjustment of the $500,000 and $1,000,000 amounts for taxable years beginning after 2026, using the cost-of-living adjustment under IRC §1(f)(3) with 2025 substituted for 2016 in subparagraph (A)(ii), rounded down to the next lowest multiple of $100.

This section establishes a new middle-income housing tax credit under new IRC §42A (modeled on the low-income housing tax credit under §42), equal to the applicable percentage of the qualified basis of each qualified middle-income building for each year in the 15-year credit period. The applicable percentage is prescribed by the Secretary to yield a present value (discounted at 72% of the average Federal mid- and long-term rates) of 50% of qualified basis for new non-Federally subsidized buildings (minimum 5% annually) and 20% for other buildings (minimum 2% annually), except zero for certain Federally subsidized buildings unless also eligible for §42 credit and tax-exempt bond financing under §42(h)(4). Qualified basis equals the eligible basis of a qualified middle-income building (part of a qualified middle-income housing project throughout the credit period) multiplied by the applicable fraction (smaller of the percentage of middle-income units or middle-income floor space among all residential rental units). Eligible basis for a new building is its adjusted basis as of the close of the first credit year; for an existing building, it is the adjusted basis if acquired by purchase with at least 10 years since last placed in service (and not previously placed in service by the taxpayer or related person), and zero otherwise.

This section revises IRC §36 to provide a refundable first-time homebuyer tax credit equal to 10% of the purchase price of a principal U.S. residence (up to $15,000, or $7,500 for married individuals filing separately), previously expired after 2010. The credit applies to individuals (and spouses) with no ownership interest in a principal residence during the prior three years who have not previously claimed the credit, requires taxpayer age 18 or older (or spouse), and is limited to acquisitions financed by a federally backed mortgage (as defined in CARES Act §4022). (1) phases out the credit for modified adjusted gross income over 150% of area median income (over a 20% AMI band); (2) phases out for purchase prices over 110% of area median purchase price (over a 15% band); (3) adjusts dollar limits for inflation after 2026 (using 2025 as base year, chained CPI). As background, area median income and purchase price are determined by location, household size, and purchase-year data from the Department of Housing and Urban Development, with Treasury to issue related regulations.

This section establishes a new refundable renter's tax credit (IRC §36C) for individuals paying rent exceeding 30% of adjusted gross income (AGI) on their principal residence, equal to an applicable percentage of such excess and limited to 100% of the small area fair market rent (including utilities) published by the Department of Housing and Urban Development. The applicable percentage is (1) 100% for AGI not over $25,000; (2) 75% for AGI over $25,000 but not over $50,000; (3) 50% for AGI over $50,000 but not over $75,000; (4) 25% for AGI over $75,000 but not over $100,000; and (5) 0% for AGI over $100,000. (Thus, the credit phases out completely above $100,000 AGI and supports low- and moderate-income renters facing housing cost burdens.) This section further establishes a program for monthly advance payments of the credit (IRC §7527B), elected on the prior year's return and reconciled at filing; amends 31 U.S.C. §1324(b)(2) to include §36C among specified credits eligible for disbursement from the permanent IRS refund appropriation (previously limited to credits up to §36B); and appropriates $50 million for community outreach related to the credit, available until five years after enactment. The amendments apply to taxable years beginning after December 31, 2025.

This section restores several aspects of the clean electricity production credit under section 45Y—including for wind and solar facilities and leasing arrangements—effective as if included in section 70512 of Public Law 119-21. Specifically, it (1) modifies the phase-out beginning date to the later of calendar year 2032 or the calendar year in which annual U.S. greenhouse gas emissions from electricity production equal or fall below 25% of 2022 levels (previously after calendar year 2032); (2) eliminates credit restrictions applicable to wind and solar facilities by revising the credit amount determination and striking former paragraph (4) of subsection (d); (3) reinstates credit eligibility for wind and solar leasing arrangements by striking subsection (h); and (4) repeals the existing studies provision in subsection (b)(2)(C)(iii). (As background, section 45Y provides a technology-neutral tax credit to taxpayers for electricity produced at qualified clean energy facilities, equal to a base amount of 0.3 cents per kWh (or 0.4 cents with prevailing wage and apprenticeship requirements), subject to phase-out.)

This section restores the clean electricity investment credit (i.e., Section 48E) by (1) repealing the termination provision for wind and solar facilities; and (2) reinstating the credit for expenditures related to wind and solar leasing arrangements (previously denied under former subsection (i)). This section also increases the credit rate for certain energy property under Section 48(a)(2)(A)(ii) to 2 percent (from 0 percent). The amendments apply as if included in section 70513 of Public Law 119-21.

This section amends the advanced manufacturing production tax credit (i.e., Section 45X, which provides tax credits to eligible taxpayers for the production and sale of specified clean energy components and critical minerals in the United States) by (1) striking metallurgical coal from the list of applicable critical minerals in Section 45X(c)(6) and (2) repealing the termination provision for wind energy components in Section 45X(b)(3)(D). It also makes conforming amendments to remove references to metallurgical coal and such termination provision from Section 45X(b). The amendments apply as if included in section 70514 of Public Law 119–21.

This section repeals the prohibition on increasing the allocation amount for qualifying advanced energy project credits under IRC §48C(e)(3)(C) by requiring that such amount shall be increased (previously, "shall not be increased"). (The §48C credit supports up to 30% tax credits for qualified investments in U.S. manufacturing facilities for clean energy components, batteries, and critical minerals processing.)

This section extends the construction commencement date under the clean hydrogen production tax credit to January 1, 2033 (from January 1, 2028). (Thus, qualified clean hydrogen production facilities beginning construction before that date remain eligible under current greenhouse gas emissions rate requirements.)

This section extends the residential clean energy credit—under which taxpayers may claim a 30% nonrefundable tax credit for qualified costs of solar panels, solar water heaters, fuel cells, small wind turbines, geothermal heat pumps, and battery storage installed in residences—to property placed in service after December 31, 2034 (from expenditures made after December 31, 2025). It revises the credit phase-down schedule to (1) 30% for property placed in service before January 1, 2033, (2) 26% for property placed in service after December 31, 2032, and before January 1, 2034, and (3) 22% for property placed in service after December 31, 2033, and before January 1, 2035.

This section reinstates special rates for sustainable aviation fuel (SAF) under the clean fuel production credit by applying, for SAF, a rate of 35 cents per gallon (from 20 cents) for fuel produced at qualified facilities described in sec. 45Z(a)(2)(A) and $1.75 per gallon (from $1.00) for those described in sec. 45Z(a)(2)(B). (As background, the clean fuel production credit provides tax credits to producers of transportation fuels based on the fuels' lifecycle greenhouse gas emissions rates, with the base credit scaled from $0.20 to $1.00 per gallon—or equivalent for non-liquids—depending on the facility and emissions rate.) It defines SAF as non-kerosene liquid fuel sold for aircraft use that meets specified ASTM International standards (D7566 or Fischer-Tropsch provisions of D1655, Annex A1) and excludes fuels derived from palm fatty acid distillates or petroleum; makes a conforming amendment to exclude the new SAF rates from inflation adjustment; and applies the amendments retroactively as if included in the provision of law that enacted sec. 45Z.

This section restores the product identification number requirement for the energy efficient home improvement credit for specified property—qualified energy property (i.e., certain building envelope components, water heaters, heat pumps, and biomass stoves or boilers) and certain other property—placed in service after December 31, 2025. No credit is allowed unless the property is produced by a qualified manufacturer that assigns a unique qualified product identification number to each item, labels it accordingly, and reports the numbers and related information to the Secretary of the Treasury, and the taxpayer includes the number on the tax return.

This section extends the New Energy Efficient Home Credit—available to eligible contractors for constructing energy-efficient single-family and multifamily homes meeting specified standards—to qualified residences acquired through December 31, 2032 (from June 30, 2026).

This section restores the classification of solar and wind energy property as 5-year property under the modified accelerated cost recovery system (MACRS) by inserting a new subclause in the definition under IRC §168(e)(3)(B)(vi). (As background, MACRS assigns depreciable business assets to recovery classes with specified periods—shorter periods such as five years enable faster cost recovery through accelerated depreciation methods; thus, this change allows taxpayers to depreciate qualifying solar and wind energy equipment over five years.)

This section extends the previously-owned clean vehicle tax credit through December 31, 2032 (from September 30, 2025). (Thus, taxpayers may claim a tax credit of up to $4,000 for the purchase of a qualified previously-owned clean vehicle acquired before January 1, 2033.)

This section extends the termination date for the new clean vehicle tax credit (IRC §30D)—which provides up to $7,500 ($3,750 for critical minerals requirements + $3,750 for battery components requirements) for qualified plug-in electric drive and fuel cell motor vehicles—to vehicles placed in service after December 31, 2032 (from acquired after September 30, 2025). It makes conforming amendments to phase-in higher North American content thresholds as follows: (1) for critical minerals, adds 80% for vehicles placed in service after December 31, 2026; and (2) for battery components, adds 80% for calendar year 2027, 90% for 2028, and 100% thereafter. (Thus, these changes support full credit availability through 2032 for vehicles meeting the escalated domestic content requirements.)

This section extends the qualified commercial clean vehicles tax credit through December 31, 2032 (from September 30, 2025). (The credit provides businesses a tax credit of up to $7,500 for qualified vehicles not exceeding 14,000 pounds gross vehicle weight rating and up to $40,000 for heavier vehicles.) It further revises the definition of qualified commercial clean vehicles by (1) striking the "primarily" requirement for vehicles used in qualifying operations, (2) expanding eligible vehicles under new subparagraph (B) to include those performing construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operations (previously limited to mobile machinery as defined in 26 U.S.C. 4053(8)), and (3) exempting such vehicles from qualified manufacturer requirements under 26 U.S.C. 30D(d)(1)(C) and vehicle identification number (VIN) requirements. (Thus, more off-road and heavy equipment becomes eligible without North American final assembly or VIN restrictions.)

This section extends the alternative fuel vehicle refueling property credit through December 31, 2032 (from June 30, 2026).

This section establishes a new nonrefundable tax credit equal to 30% of the cost (up to $5,000 per bicycle) of qualified electric bicycles placed in service by an individual taxpayer during the taxable year. The credit is limited to one bicycle (two for joint returns), net of any claimed in the prior two taxable years, and phases out by $100 for each $1,000 (or fraction thereof) of modified adjusted gross income exceeding $300,000 (joint return or surviving spouse), $225,000 (head of household), or $150,000 (other taxpayers). A qualified electric bicycle is a new class 1, 2, or 3 electric bicycle or tricycle (i.e., two- or three-wheeled pedal-assist vehicles with motors under 750 watts, speed limits of 20 or 28 mph depending on class, UL 2849-certified drive system or battery, cost not exceeding $8,000, and labeled with a qualified manufacturer's vehicle identification number). Taxpayers may elect to apply the credit to business-use bicycles ineligible for depreciation or other deductions or credits.

This section establishes a new qualifying water reuse project credit equal to 30% of the qualified investment (i.e., basis) in qualified property (i.e., taxpayer-constructed or new-to-taxpayer depreciable tangible property) that is part of a qualifying water reuse project placed in service after enactment. A qualifying water reuse project is one that (1) installs, replaces, or modifies an onsite water recycling system within an industrial, manufacturing, data center, or food processing facility; (2) replaces freshwater (e.g., groundwater) with recycled water from a municipal provider for producing goods or providing services; or (3) builds or expands a municipal water recycling system to secure recycled water for producing goods or providing services—and such project must satisfy prevailing wage and apprenticeship requirements under section 45(b)(7) and (8). The credit applies to the transferor (not the utility) in cases of qualified transfers of such property to a utility under a binding agreement; applies progress expenditure rules similar to prior section 46(c)(4) and (d); and does not apply to property with construction beginning after December 31, 2032. (As background, the credit is included in the general business credit under section 46 and promotes water conservation and recycling in water-intensive sectors.)

This section establishes a new investment tax credit equal to 30% of the basis of eligible recycling property placed in service during the taxable year, provided the property meets prevailing wage and apprenticeship requirements under section 45(b)(7) and (8). Eligible property includes depreciable qualified recycling property—i.e., property the original construction, reconstruction, or acquisition of which is by the taxpayer and which is used to recycle qualified reuse and recyclable materials (including video display devices and computer devices such as peripherals)—subject to rules similar to those for progress expenditures, subsidized property, elective payment phaseout, and denial of double benefits under existing credits. The credit increases by 10 percentage points for domestic content and phases out as follows based on the property's determination date (construction start for self-constructed property or placed-in-service date otherwise): 100% for 2026-2032, 80% for 2033, 60% for 2034, 40% for 2035, 20% for 2036, and 0% thereafter. (Thus, the credit incentivizes new investments in recycling facilities that process materials for reuse as feedstock rather than fuel or energy production.)

This section establishes an exclusion from gross income for qualified catastrophe loss mitigation payments (i.e., amounts received by an individual under a state or local program to improve the individual's residence solely for hazard mitigation) received after December 31, 2025. It further provides that such payments do not increase the recipient's basis in the residence (applying rules similar to those for other §139 exclusions) and makes conforming amendments to §139.

This section amends Section 139 of the Internal Revenue Code to expand the definition of qualified disaster relief payments—excludable from gross income—to include assistance under six specified agricultural disaster programs, for tax years beginning after December 31, 2025. The programs are (1) the Wildfires and Hurricanes Indemnity Program Plus; (2) the Livestock Forage Disaster Program under section 1501 of the Agricultural Act of 2014 (7 U.S.C. 9081); (3) the Noninsured Crop Disaster Assistance Program (NAP) under 7 U.S.C. 7333, which provides the equivalent of crop insurance coverage for eligible crops without available policies under the Federal Crop Insurance Act; (4) a food assistance program under 7 CFR part 9; (5) the Emergency Conservation Program under title IV of the Agricultural Credit Act of 1978 (16 U.S.C. 2201 et seq.); and (6) the Quality Loss Assistance Program.

This section establishes a new nonrefundable tax credit equal to 30% of qualified disaster mitigation expenditures paid or incurred by a taxpayer for real property owned or leased by the taxpayer, with business-related expenditures treated as part of the general business credit under IRC §38(b) and the remainder allowed as a personal credit. Qualifying mitigation activities for housing units include (1) structural improvements to roofs, walls, doors, and foundations (e.g., roof deck attachments, gable-end bracing, elevation above base flood levels); (2) installation of flood vents, check valves, ignition-resistant components, storm shelters, safe rooms, generators, and shutoff valves; (3) vegetation management and buffers to reduce fire risk; (4) measures qualifying for a FORTIFIED designation from the Insurance Institute for Business & Home Safety (IBHS); (5) measures qualifying for an IBHS Wildfire Prepared Homes designation; or (6) any other activities designated by the President, in consultation with the FEMA Administrator.

This section establishes a new Qualifying Electric Power Transmission Line Credit equal to 30% of the qualified investment (i.e., basis) in qualifying electric power transmission line property placed in service after enactment, subject to prevailing wage and apprenticeship requirements under IRC §45(b)(7) and (8). Qualifying property includes overhead, submarine, or underground transmission lines that transmit electricity across at least two states or 150 continuous miles, across the Outer Continental Shelf (as defined in 43 U.S.C. §1331), or related transmission property (e.g., certain interconnection tie-lines of at least 230 kilovolts, grid-enhancing technologies, and subcomponents). Qualifying transmission lines encompass (1) new lines placed in service after enactment that enhance resilience, address clearance or high loads (2,000 amperes+), or facilitate interconnections to the bulk-power system, with capacity thresholds of 1,000 megawatts (if co-located) and voltage of at least 100 kilovolts (advanced conductors) or 345 kilovolts/superconducting (750 megawatts minimum); and (2) modifications to existing lines that increase capacity by at least 500 megawatts while meeting similar criteria.

This section establishes a new investment tax credit under IRC §48H (Qualifying Advanced Battery Project Credit) equal to 30% of qualified investment (i.e., basis of eligible property placed in service) for any qualifying advanced battery project certified by Treasury. A qualifying advanced battery project re-equips, expands, or establishes a U.S. manufacturing or research facility primarily used for producing or developing batteries or components with advanced chemistries or technologies (e.g., solid-state lithium metal batteries, lithium-sulfur batteries, metal-air batteries, sodium-ion batteries, or others determined by Treasury, in consultation with DOE, to offer significant improvements over traditional lithium-ion batteries in performance or fire safety). (Thus, facilities producing only traditional lithium-ion batteries without such advancements are ineligible.) Treasury, in consultation with DOE, must establish a certification program within 180 days of enactment, with total credits capped at $3 billion; applications accepted for two years from program establishment; one year from application acceptance to meet certification criteria; and three years from certification to place the project in service (after which certification expires). Treasury must review allocations four years after enactment and may reallocate credits if applications are insufficient or certifications are revoked due to delays from third-party opposition or litigation. The section denies the credit for any investment eligible under another IRC provision, authorizes necessary regulations (including an annual list of qualifying technologies), and makes the credit eligible for elective payment under §6417 and transfer under §6418.

This section establishes a new refundable monthly child tax credit under new IRC §24A, providing advance monthly payments to eligible taxpayers for qualifying children under age 18 who reside with the taxpayer for more than half the month, receive uncompensated care from the taxpayer, and meet U.S. residency or adoption requirements. The credit equals $300 per qualifying child age 6 or older, $360 (120% of $300) per child under age 6, or $2,400 (800% of $300) per child under 1 month old as of month-end, with phaseout of 5% of modified adjusted gross income (MAGI) exceeding $150,000 ($75,000 married filing separately)/$112,500 (others) and an additional 5% phaseout exceeding $400,000/$200,000/$300,000, respectively; MAGI equals adjusted gross income plus certain foreign earned income exclusions, and amounts are indexed for inflation after 2026 (credit dollar amounts) or 2025 (phaseout thresholds). This section also amends 31 U.S.C. 1324(b)(2) to authorize disbursements from the permanent appropriation for refunds attributable to new §24A (in addition to refunds for certain other pre-1978, 1997 Taxpayer Relief Act, and specified IRC credits).

This section modifies the child and dependent care tax credit as follows: (1) revises the applicable percentage to 50 percent (from 35 percent), reduced (but not below the phaseout percentage) by 1 percentage point for each $2,000 (or fraction thereof) of adjusted gross income over $125,000 (from $15,000), with the phaseout percentage defined as 20 percent reduced (but not below zero) by 1 percentage point for each $2,000 (or fraction thereof) over $400,000 (previously floored at 20 percent with no further reduction); (2) increases the maximum employment-related expenses eligible for the credit to $8,000 for one qualifying individual (from $3,000) and $16,000 for two or more qualifying individuals (from $6,000); (3) revises the special rule for married individuals filing separate returns to determine the applicable percentage and maximum expenses (coordinating with the section 129 dependent care flexible spending account exclusion) as if filing jointly, with the aggregate credit for both spouses not to exceed the joint return amount; (4) adds inflation adjustment, for taxable years beginning after 2026, to the $125,000 threshold and expense dollar amounts using chained CPI (with calendar year 2025 as the base year), rounded to the next lowest multiple of $100; and (5) makes the credit refundable (i.e., treated as allowed under subpart C) for taxpayers (either spouse, in the case of a joint return) maintaining a principal place of abode in the United States for more than half the taxable year (previously nonrefundable). The amendments apply to taxable years beginning after December 31, 2025.

This section doubles the maximum annual exclusion from gross income for employer-provided dependent care assistance (i.e., payments or reimbursements for child or dependent care expenses, typically via flexible spending accounts) to $10,000 ($5,000 if married filing separately) from $5,000 ($2,500), for taxable years beginning after December 31, 2025. The section also (1) establishes an annual cost-of-living adjustment for these amounts, based on chained CPI for urban consumers with 2024 as the base year and rounded to the nearest $50; and (2) strikes obsolete coordinating language in the exclusion provision.

This section establishes a new nonrefundable tax credit under new IRC §25F for working family caregivers equal to 30% of qualified expenses exceeding $2,000, capped at $5,000 ($2,000 inflation-adjusted after 2026 using the medical care cost index). An eligible caregiver is an individual with earned income over $7,500 who pays qualified expenses for a qualified care recipient—defined as a spouse or specified relative (per IRC §152(d)(2)(A)-(H)) certified by a licensed health care practitioner as having long-term care needs for at least 180 consecutive days (a portion within the taxable year), with certification valid if made within 39½ months of the tax return due date. Qualified expenses include goods, services, and supports (e.g., human assistance, assistive devices, home modifications, respite care, caregiver training, lost wages verified by employer, and travel) aiding activities of daily living (per IRC §7702B(c)(2)(B)) or instrumental activities of daily living (per SSA §1915(k)(6)(F)), reduced by amounts claimed under IRC §§21, 213, 129, 223(f), or 529A; long-term care needs vary by age (e.g., for those 6+, inability to perform 2+ activities of daily living or cognitive impairment requiring supervision). (Thus, the credit supports family caregivers balancing employment and care for relatives with disabilities or illnesses, including children and adults, without regard to Medicaid enrollment.)

This section establishes a new one-time nonrefundable income tax credit (IRC §36E) of up to $5,000 for qualified child care startup expenses paid or incurred after enactment by a qualified taxpayer operating a qualified family child care provider. A qualified family child care provider is a state-licensed or registered provider that primarily operates at the taxpayer's primary residence and provides compensated care to at least two non-taxpayer children for a significant portion of the taxable year while satisfying applicable state and local requirements. Qualified startup expenses include (1) licensing fees; (2) supplies such as diapers, food, toys, and learning materials; (3) liability insurance; (4) fencing; (5) outdoor playground equipment; (6) furniture; (7) salary for non-taxpayer employees; (8) printers and computers; (9) required professional training; and (10) required remediation or renovation of the residence; with no double benefit allowed for expenses deducted or credited elsewhere. The credit sunsets for taxable years beginning more than seven years after enactment, and the section includes conforming amendments to IRC §6211 and 31 USC §1324(b)(2) and to the table of sections.

This section makes the adoption tax credit refundable by redesignating IRC §23 as §36F, relocating it from subpart A (nonrefundable credits) to subpart C of part IV of subchapter A of chapter 1 (refundable credits), and striking its limitation to tax liability. It makes conforming amendments to multiple IRC sections (e.g., §§25, 36E, 137, 1016, 6211, and 1324(b) of title 31, U.S. Code) and to SSA §471(a)(33) (42 U.S.C. 671(a)(33)) to update cross-references from §23 to §36F. The section further requires IRS regulations and guidance under §36F(h) providing for standardized third-party affidavits verifying qualified adoptions (i.e., those incurring qualified expenses or involving special needs children). The amendments apply to taxable years beginning after December 31, 2025, with a transitional rule adding any excess credit carryforward from prior years to the refundable credit allowable in the first applicable year.

This section expands the American Opportunity Tax Credit (AOTC)—a partially refundable tax credit of up to $2,500 per eligible postsecondary student for qualified tuition, fees, and course materials—to 6 taxable years (from 4), effective for taxable years beginning after December 31, 2025. It also makes the AOTC fully refundable for taxable years beginning in 2026 (from 40% refundable, or $1,000 of $2,500). Additionally, it directs the Secretary of the Treasury to conduct an outreach campaign informing the public of the expansion and assisting eligible individuals with claiming the credit, including via the IRS website and direct mailings or emails to identified eligible taxpayers.

This section expands the definition of qualified scholarship under IRC §117(b)(1) to exclude from gross income the full amount of any Federal Pell Grant (previously, only to the extent used for qualified tuition and related expenses). (As background, Federal Pell Grants provide need-based grant aid to low-income undergraduate and certain post-baccalaureate students for qualified higher education expenses.) It also amends the American Opportunity and Lifetime Learning tax credits under IRC §25A(g)(2)(A) such that only qualified scholarships used for qualified tuition and related expenses (i.e., those described in new §117(b)(1)(A)) reduce the amount of such expenses eligible for the credits (thus, Pell Grants do not). The changes apply to taxable years beginning after December 31, 2025.

This section expands the definition of qualified tuition and related expenses for the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC)—which provide tax credits of up to $2,500 per eligible postsecondary student (AOTC, partially refundable) and up to $2,000 per return (LLC, nonrefundable), respectively—to include (1) course materials, (2) computer or peripheral equipment, computer software, or internet access and related services used primarily by the student during enrollment (not to exceed $1,000 aggregate per taxable year), and (3) child and dependent care expenses incurred to enable the taxpayer's enrollment at an eligible educational institution when one or more qualifying individuals (as defined under child and dependent care credit rules in IRC §21(b)(1)) require care (excluding overnight camps). It also strikes prior subparagraph (D) from the definition and makes conforming changes to rules coordinating the credits with education expense deductions. The changes apply to taxable years beginning after December 31, 2025.

This section revises the exclusion from gross income for discharged student loans under IRC §108(f) to apply to the forgiveness of (A) any loan expressly for postsecondary educational expenses made, insured, or guaranteed by the United States (or agency), a state (or subdivision), or an institution of higher education; (B) any private education loan (as defined in the Truth in Lending Act); (C) certain loans by qualifying educational organizations pursuant to government agreements or programs encouraging service in occupations or areas with unmet needs; or (D) refinancing loans by such organizations or tax-exempt entities under similar programs (previously, the exclusion applied only if forgiveness was contingent on the borrower working at least five years for a government or tax-exempt employer in public service). The amendments strike prior paragraphs specifying public service conditions and coordination rules, effective for discharges after December 31, 2025. (Thus, most student loan forgiveness becomes nontaxable starting in 2026, regardless of reason.)

This section revises the student loan interest deduction to limit the annual deduction to $2,500 per taxpayer for interest paid on qualified student loans incurred by an individual, applying the limit separately to each spouse for taxable years beginning after December 31, 2025 (previously, $2,500 per tax return). (Thus, a married couple filing jointly may deduct up to $5,000 total if both spouses paid qualifying interest.)

This section expands the educator expense deduction—allowing eligible educators an above-the-line deduction of up to $300 for qualified classroom expenses (e.g., books, supplies)—to include early childhood educators, in addition to kindergarten through grade 12 teachers, for expenses incurred in taxable years beginning after December 31, 2025 (previously limited to kindergarten through grade 12 teachers instructing in elementary or secondary education).

This section, for taxable years beginning after December 31, 2025— (1) allows an above-the-line deduction for union dues and expenses attributable to the trade or business of performing services as an employee; and (2) excepts other miscellaneous itemized deductions attributable to such trade or business from the suspension under IRC §67(g), allowing them subject to the 2%-of-adjusted gross income floor.

This section makes permanent the deduction for qualified cash tips received by employees in certain service occupations and modifies its terms. Specifically, it (1) strikes the provision's sunset date; (2) applies the deduction limitation on an individual basis; and (3) expands qualified tips to include automatic gratuities (i.e., mandatory or suggested amounts under an employer policy, received by the employee or pooled via tip-sharing under state or local law) for individuals in hospitality, food and beverage service, or cosmetology. The changes apply to taxable years beginning after December 31, 2025.

This section revises the definition of qualified overtime compensation eligible for the deduction under IRC §225 to mean (1) overtime required under §7 of the Fair Labor Standards Act of 1938 (FLSA) (i.e., generally compensation exceeding an employee's regular rate for hours worked over 40 in a workweek), or (2) other compensation exceeding the regular rate paid for work performed for a single employer pursuant to a pre-work agreement with the employee (or union) specifying hours exceeding at least 40 in a 7-day period, or—for employees and employers covered by the Railway Labor Act (RLA), including crewmembers, flight crewmembers, or rail operating craft employees—hours beyond scheduled or anticipated duty or exceeding maximum hours per the agreement. The changes apply to taxable years beginning after December 31, 2025.

This section modifies the above-the-line deduction for unreimbursed employee business expenses of qualifying performing artists (i.e., those working for at least two nominal employers with aggregate expenses exceeding 10% of gross income from performing arts) for taxable years beginning after December 31, 2025, by (1) establishing an income-based phaseout that reduces allowable expenses (but not below zero) by 10 percentage points for each $2,000 ($4,000 for joint returns), or fraction thereof, by which gross income exceeds $100,000 ($200,000 for joint returns)—with the $100,000 threshold adjusted for inflation after 2026; (2) clarifying that commissions paid to the artist's manager or agent qualify as deductible expenses; (3) increasing the threshold for determining nominal employers to $500 (from $200), with inflation adjustment after 2026; and (4) making conforming and clerical changes.

This section permanently extends and enhances the earned income tax credit (EITC) for individuals without qualifying children (i.e., the smaller credit available to low- and moderate-income workers aged 25-64 under prior law) for taxable years beginning after December 31, 2025, by (1) lowering the minimum age to 19 (from 25), to 24 for non-foster/homeless students (from 25), and to 18 for qualified former foster youth or qualified homeless youth; (2) eliminating the maximum age limit of 65; (3) doubling the credit rate and phaseout rate to 15.3% (from 7.65%); and (4) increasing the phase-in limit to $9,820 (from $4,220) and the phaseout threshold to $11,610 (from $5,280). The section also establishes inflation adjustments for these and certain other EITC amounts (with base years of 2025 for the new phaseout threshold, 1995 for other subsection (b)(2)(A) amounts, 2008 for subsection (b)(2)(B), and 2020 for subsection (i)(1)), and strikes the prior-law expiration provision. (Thus, the enhanced credit becomes available indefinitely to eligible childless workers meeting the new age rules.)

This section makes permanent the application of the earned income tax credit (EITC) to (1) Puerto Rico, (2) possessions with mirror code tax systems, and (3) American Samoa (previously limited to calendar years 2021 through 2025).

This section establishes an election allowing taxpayers to substitute prior-year earned income for current-year earned income in calculating the earned income tax credit (EITC) if current-year earned income is lower, with joint returns using the sum of each spouse's prior-year earned income. It applies to taxable years beginning after December 31, 2025, treats incorrect elections as mathematical errors under section 6213, and specifies that the substitution does not otherwise affect gross income or other tax determinations.