H.R. 7414 — Affordable Housing Bond Enhancement Act

This section designates the short title of the Act as the “Affordable Housing Bond Enhancement Act” and includes a table of contents.

This section requires the Secretary of the Treasury to submit to the Senate Committees on Banking, Housing, and Urban Affairs and Finance and the House Committees on Financial Services and Ways and Means, by December 31 of each calendar year, a report on private activity bond volume cap usage in the preceding calendar year for each state, based on information from state and local issuing authorities. The report must specify (1) the state's volume cap, (2) aggregate carryforwards available on the first day of the year, (3) total bond authority as the sum of (1) and (2), (4) private activity bonds issued by purpose under section 146(f)(5) (distinguishing volume cap bonds from carryforward bonds), (5) aggregate carryforwards that expired, and (6) excess volume cap amounts not elected as carryforwards. This section further requires issuers to submit information statements electronically under section 149(e)(2), authorizes the Secretary to disclose such information to the committees, with requirements applying to calendar years beginning after enactment.

This section revises the carryforward rules for private activity bond state volume caps under IRC §146(f)—which allow issuing authorities to carry forward unused annual volume cap authority for up to three calendar years for designated purposes without those bonds counting against the current-year cap—to permit greater flexibility for housing-related carryforwards elected after December 31, 2025, as follows: (1) explicitly extends the three-year cap exclusion to carryforwards received via transfer or redesignated for another purpose; and (2) creates an exception to the general irrevocability of carryforward elections by allowing, during the three-year period, transfers within the same state to issuing authorities authorized for qualified mortgage bonds or qualified residential rental projects (IRC §142(a)(7)) or redesignation of such carryforwards for those housing purposes, subject to state law direction (except for constitutional home rule cities). (Thus, this facilitates reallocating unused volume cap to housing bond issuers or projects within the state.)

This section eliminates the prohibition on using proceeds of qualified mortgage bonds to refinance existing mortgages on principal residences of mortgagors who, as of the refinancing date, continue to meet principal residence requirements under IRC §143(c)(1) and income limits under §143(f). For such refinancings, it disregards the requirements of §143(d) and applies the acquisition cost limits of §143(e) based on the residence's market value at refinancing (instead of original acquisition cost). The changes apply to refinancing loans made on or after the date of enactment.

This section increases the maximum principal amount for qualified home improvement loans financed through qualified mortgage bonds to $75,000 (from $15,000) and requires annual inflation adjustments to that dollar amount for calendar years beginning after 2026, based on the cost-of-living adjustment under IRC §1(f)(3) using 2024 as the base year (with rounding to the nearest $100). (Qualified mortgage bonds, under IRC §143, are tax-exempt private activity bonds that states and localities may issue to finance owner-occupied housing, including home improvements.) The changes apply to loans made after the last day of the calendar year that includes the date of enactment.

This section revises the recapture tax on issuers of qualified mortgage bonds for certain dispositions or refinancings of financed residences within five years after the testing date (from nine years). It replaces the holding period percentage table with a new schedule of 20% in the first year after the testing date, 40% in the second year, 60% in the third year, 80% in the fourth year, and 100% in the fifth year; adds a rule that the percentage is zero for succeeding years if the federally subsidized indebtedness is completely repaid within the four-year period beginning on the testing date; and makes conforming changes to related provisions. The changes apply to taxable years beginning after December 31, 2025.

This section modifies the mortgage credit certificate (MCC) program—under which eligible homebuyers may claim a nonrefundable tax credit equal to a specified percentage of mortgage interest paid—as follows: (1) bases the credit amount on the certificate credit rate applied to the certified indebtedness amount (i.e., outstanding principal) on which interest was paid or accrued during the taxable year, rather than on the interest paid or accrued; (2) limits the certificate credit rate to 1 percent to 5 percent (from 20 percent to 50 percent); (3) authorizes issuing authorities to specify a different annual certificate credit rate for each year of the mortgage term; (4) eliminates the special limitation applicable where the certificate credit rate exceeds 20 percent; and (5) revises volume limitations on certificate issuance to use the average annual certificate credit rate. The changes apply to MCCs issued on or after the first day of the second calendar year beginning after enactment.

This section extends the effective period of mortgage credit certificates (MCCs) issued using nonissued bond amounts (i.e., carryforward private activity bond volume cap under IRC §25(d)(2)) to the fourth calendar year following the calendar year of issuance (from the second calendar year). The change applies to such certificates using carryforwards relating to calendar years after December 31, 2025. (MCCs, issued by state or local governments, allow qualified homebuyers to claim an annual tax credit equal to 20-50% of mortgage interest paid.)

This section authorizes an issuing authority to elect to reduce the nonissued bond amount (i.e., volume cap allocated but unused for mortgage credit certificates) for an election made under IRC Section 25(c)(2)(A)(ii) during a calendar year, provided the revocation election occurs not later than the end of the succeeding calendar year. (Mortgage credit certificates enable qualified homebuyers to claim a nonrefundable tax credit of up to 50% of mortgage interest paid, in lieu of tax-exempt mortgage revenue bonds; this provides flexibility to reallocate private activity bond volume cap to bonds if MCC demand is low.) The provision coordinates with private activity bond carryforward rules under IRC Section 146(f)(3) to preserve existing issuance deadlines, and applies to elections made after December 31, 2025.

This section reduces the public notice period required under Section 25(e)(5) to 30 days (from 90 days), effective for notices provided after December 31, 2025.

This section eliminates the information reporting requirement for lenders on loans constituting certified indebtedness amounts under mortgage credit certificates (MCCs)—i.e., state or local government-issued certificates allowing taxpayers to claim a nonrefundable tax credit (typically 20%-50%) for a portion of home mortgage interest paid—requiring reporting solely by MCC issuers. It makes a conforming amendment to the penalty provision for failure to file correct information returns.