S. 1511 — 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 an annual report 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, on private activity bond volume cap usage in the preceding calendar year. For each state, the report must specify (1) the state volume cap (i.e., state ceiling); (2) aggregate carryforwards available on the first day of the preceding year; (3) total bond authority as the sum of (1) and (2); (4) aggregate private activity bonds issued for each 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. The section also requires issuers to submit information statements electronically and authorizes the Secretary to disclose relevant taxpayer information to the specified committees. These requirements apply to calendar years beginning after enactment.

This section amends the carryforward rules for private activity bond state volume caps under IRC §146(f) (i.e., unused annual limits that issuing authorities may elect to carry forward for one specified purpose), applicable to elections made after December 31, 2025. Specifically, it (1) extends the period during which bonds issued to fulfill a carryforward purpose do not count against the current-year cap to three calendar years following the calendar year in which the carryforward arose (from one calendar year), up to the carryforward amount; and (2) permits issuing authorities to transfer a carryforward to another authority in the same state or redesignate it for qualified mortgage bonds, mortgage credit certificates, or qualified residential rental projects during that three-year period, with such elections otherwise irrevocable and subject to state law directives or limitations. (Thus, the changes increase flexibility to redirect unused volume cap capacity toward housing finance.)

This section establishes an exception to the prohibition on refinancing existing mortgages using proceeds of qualified mortgage bonds (i.e., tax-exempt state and local bonds financing single-family owner-occupied residences) for mortgagors who, as of the refinancing date, meet the principal residence requirements of IRC §143(c)(1) and the income requirements of IRC §143(f). For such refinancings, the acquisition cost ceiling of §143(d) does not apply, and the residence requirements of §143(e) are determined using the residence's market value at refinancing instead of its original acquisition cost. The provision applies to refinancing loans made on or after the date of enactment.

This section increases the maximum principal amount for qualified home improvement loans financed by qualified mortgage bonds to $75,000 (from $15,000). It further requires annual inflation adjustment of the $75,000 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 and rounded to the nearest $100. 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 applicable to mortgage revenue bonds (i.e., tax-exempt bonds issued by states and localities to finance mortgages for low- and moderate-income owner-occupied housing) if the average income of bond-financed mortgagors exceeds 140% of area median gross income during a testing period. Specifically, it (1) replaces the holding period percentage table with a new one setting the percentage at 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; (2) provides that if federally subsidized indebtedness secured by the residence is completely repaid during the four-year period beginning on the testing date, the holding period percentage for succeeding years is zero; and (3) shortens the testing period to five years (from nine years). The changes apply to taxable years beginning after December 31, 2025.

This section revises the mortgage credit certificate (MCC) tax credit—under which eligible homebuyers claim a nonrefundable credit equal to a specified percentage of qualified mortgage interest paid—by basing the credit amount on the certificate credit rate times the certified indebtedness amount (i.e., principal balance) on which interest was paid or accrued during the taxable year (previously, times the interest paid or accrued on that amount). It (1) limits the allowable certificate credit rate to 1-5% (from up to 50%), (2) authorizes issuing authorities to specify a different annual certificate credit rate for each year of the mortgage term, and (3) makes conforming changes, including generalizing the rule for credit computation (previously limited to rates exceeding 20%) and inserting "average annual" in the volume limit calculation. The changes apply to MCCs issued on or after the first day of the second calendar year that begins after enactment.

This section extends the period of effectiveness for mortgage credit certificates (MCCs) to December 31 of the fourth calendar year following the calendar year of issuance (from the second calendar year). The change applies to MCCs with respect to which the volume limitation under IRC §25(d)(2)(A) is determined by reference to nonissued bond amounts relating to calendar years after December 31, 2025. (As background, an MCC allows the holder to claim an annual nonrefundable tax credit equal to a specified percentage, not exceeding 50%, of interest paid on indebtedness incurred to acquire, construct, or substantially rehabilitate a principal residence.)

This section authorizes an issuing authority to elect to reduce the nonissued bond amount for a calendar year following an election under IRC §25(c)(2)(A)(ii) to issue mortgage credit certificates (i.e., tax credits for qualified homebuyers' mortgage interest as an alternative to private activity mortgage revenue bonds), provided the revocation election is made not later than the end of the succeeding calendar year. The provision applies to elections made after December 31, 2025, and coordinates with private activity bond carryforward rules under IRC §146(f)(3).

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

This section eliminates the information reporting requirement for lenders of loans constituting certified indebtedness amounts under mortgage credit certificates (MCCs)—which enable eligible homebuyers to claim a nonrefundable tax credit for a percentage of mortgage interest paid—by limiting reporting to issuers of the certificates and striking the second sentence of IRC §25(g). It also makes a conforming amendment to IRC §6709(c) to remove the reference to the eliminated lender reporting penalty.