S. 1515 — Affordable Housing Credit Improvement Act of 2025

This section revises the formula for a state's annual housing credit dollar amount ceiling under the low-income housing tax credit (LIHTC)—which provides federal tax credits to developers for the construction or rehabilitation of rental housing for low-income households—by replacing the fixed per capita amount of $1.75 (in sec. 42(h)(3)(C)(ii)(I)) with a new per capita amount and the fixed minimum amount of $2 million (in sec. 42(h)(3)(C)(ii)(II)) with a new minimum amount, as follows: (1) for calendar year 2025, per capita amount of $4.25 and minimum amount of $4,876,000; (2) for calendar year 2026, amounts equal to 1.25 multiplied by the calendar year 2025 amount as increased by the cost-of-living adjustment (COLA) under IRC sec. 1(f)(3) using calendar year 2024 as the base year (with per capita rounded to the next lowest multiple of $5,000 and minimum to the next lowest multiple of 5 cents); and (3) for calendar years after 2026, prior-year amounts increased by the COLA under sec. 1(f)(3) using calendar year 2025 as the base year (with per capita rounded to the next lowest multiple of 5 cents and minimum to the next lowest multiple of $5,000). The amendments apply to calendar years beginning after December 31, 2024.

This section expands the low-income requirements for qualified residential rental projects financed by exempt facility bonds (i.e., tax-exempt private activity bonds under IRC §142(a)(7)) to include, as a third option, the average income test applicable to certain low-income housing tax credit properties (i.e., meeting the minimum requirements of IRC §42(g)(1)(C), under which the average tenant income does not exceed 60% of area median gross income). The change applies to elections made under IRC §142(d)(1) after March 23, 2018.

This section codifies rules under the low-income housing tax credit (LIHTC) permitting certain low-income units to retain that status despite increased tenant income, applicable to taxable years beginning after December 31, 2024. (As background, the LIHTC provides tax credits to owners of qualified affordable rental housing to support units rented to tenants with incomes at or below specified percentages of area median gross income (AMGI), generally requiring a minimum of 20% or 40% of units to qualify as low-income.) Specifically, it revises IRC §42(g)(2)(D)(i) to treat as low-income (1) any rent-restricted unit with initial occupant income of 60% or less of AMGI and (2) any unit initially subject to a federal, state, or local income restriction that subsequently qualifies under LIHTC rehabilitation credit rules, if initial income was 60% or less of AMGI and does not exceed 120% of AMGI as of the taxpayer's acquisition. It further adds new clause (vi) excepting units where occupants initially qualified under the LIHTC average income test (IRC §42(g)(1)(C)) with incomes over 60% but not over 80% of AMGI, substituting "80 percent" for "60 percent" in the above rules.

This section revises the student occupancy rule under the low-income housing tax credit (LIHTC) program—generally disqualifying units occupied solely by full-time students at institutions of higher education from counting as low-income units—to apply only to such students who have not attained age 24 (previously, all ages). It expands exceptions for income-eligible students to include those who are married; have disabilities; are veterans; have one or more qualifying children; are or have been victims of domestic violence, dating violence, sexual assault, stalking, or human trafficking; or are, or were prior to age 18, emancipated minors, in foster care or legal guardianship, unaccompanied homeless youth, or homeless children and youths (as defined in the McKinney-Vento Homeless Assistance Act, 42 U.S.C. 11434a). (Thus, LIHTC properties may count units occupied solely by such excepted students toward low-income set-aside requirements.) This section further excepts units in federally assisted buildings (e.g., under the section 8 tenant-based rental assistance program) if all occupants meet applicable program requirements. The changes apply to taxable years beginning after December 31, 2025.

This section amends the rent restriction under the low-income housing tax credit (LIHTC) so that tenant-based assistance—as defined in section 8(f)(7) of the U.S. Housing Act of 1937 (i.e., Housing Choice Vouchers)—is excluded from gross rent calculations for projects electing average income requirements under IRC §42(g)(1)(C) or portions of projects to which IRC §42(d)(5)(C) applies. The change applies to rent paid in taxable years beginning after December 31, 2025. (As background, LIHTC limits gross rents for low-income units to 30% of the imputed income limit applicable to the unit, typically based on 60% of area median gross income. Thus, qualifying projects may enter contracts for gross rents exceeding the LIHTC limit when tenant-based assistance covers the difference.)

This section amends the low-income housing tax credit (LIHTC) requirements to protect victims of domestic violence, dating violence, sexual assault, or stalking in the following ways: (1) requires low-income housing commitments to prohibit refusal to lease or lease termination solely due to such criminal activity by a household member, guest, or person under tenant control if the tenant or affiliated individual is the victim or threatened victim, and allows such victims to enforce the prohibition in state court; (2) applies rules similar to those under section 41411(b)(3)(B) of the Violence Against Women Act of 1994 for bifurcating leases to evict the perpetrator while retaining victim tenants (thus, bifurcation does not treat remaining occupants as new tenants for LIHTC low-income occupancy calculations); and (3) clarifies that housing such victims or threatened victims does not violate the general public use requirement (i.e., units must remain available to the general public and not be restricted to specific population groups). The changes in (1) and (2) apply to agreements executed or modified on or after 30 days following enactment, while the public use clarification applies to buildings placed in service before, on, or after enactment.

This section clarifies the general public use requirement for the low-income housing tax credit (LIHTC)—which permits certain occupancy preferences (e.g., for members of specified groups under federal programs) while ensuring broad access to qualified low-income rental housing—by treating any veteran of the Armed Forces as a member of such a group. It further aligns the general public use requirement for tax-exempt bond-financed qualified residential rental projects with the LIHTC standard, such that units do not fail the requirement solely due to occupancy restrictions or preferences that satisfy LIHTC rules. The changes apply to buildings placed in service and bonds issued before, on, or after enactment.

This section modifies low-income housing tax credit (LIHTC) recapture and qualified basis rules for buildings affected by casualty losses. (The LIHTC provides federal tax credits to encourage equity investments in qualified affordable rental housing for low-income households.) Specifically, the section (1) eliminates tax credit recapture for reductions in qualified basis due to a casualty loss if the building is reconstructed or replaced within a reasonable period of up to 25 months established by the state housing credit agency—with the period extendable by up to 12 additional months (and the overall LIHTC compliance period accordingly) for qualified casualty losses (i.e., those resulting from federally declared disasters) if reconstruction within 25 months is impractical due to a nondiscrete event; and (2) freezes a building's qualified basis at its pre-casualty level—and preserves its status as a qualified low-income building—through the reconstruction or replacement period under (1), after which any unrecaptured credits claimed due to the freeze are subject to recapture if not restored. The changes apply to casualties occurring after the date 25 months before enactment.

This section modifies the low-income housing tax credit (LIHTC) acquisition basis rules and prior ownership requirements under IRC §42(d)(2) for buildings placed in service after December 31, 2024. (The LIHTC provides federal tax credits to investors based on qualified basis—generally 30% of eligible costs for existing building acquisitions meeting low-income occupancy thresholds—to encourage preservation and production of affordable rental housing.) Specifically, the section (1) permits taxpayers to elect a new basis limitation under subparagraph (C)(ii) for buildings previously placed in service, (2) limits acquisition basis for buildings last placed in service within the prior 10 years to the lowest price paid for the building by any prior owner during those 10 years (increased by a cost-of-living adjustment under IRC §1(f)(3), using the lowest-price acquisition year in lieu of 1992) plus the seller's capital improvements reflected in the seller's basis, and (3) shortens the non-ownership period for the taxpayer or related persons from 10 years to 5 years ending on the acquisition date. (Thus, these changes limit allowable basis to curb credit inflation from resales while easing related-party restrictions.)

This section treats costs relating to the relocation of occupants—including (1) amounts paid to occupants, (2) amounts paid to third parties for services relating to such relocation, and (3) amounts paid for temporary housing for occupants—as chargeable to capital account and taken into account as rehabilitation expenditures under the low-income housing tax credit (LIHTC), in the case of a rehabilitation of a building to which IRC §280B does not apply. (Thus, such costs may contribute to meeting the substantial rehabilitation test.) The provision applies to expenditures paid or incurred after December 31, 2024.

This section repeals the 20% aggregate population cap on qualified census tracts for purposes of the low-income housing tax credit (LIHTC)—which provides tax credits to developers of affordable rental housing in designated low-income areas. (Thus, after December 31, 2025, more census tracts may qualify for the 130% basis boost available under the LIHTC.)

This section revises the low-income housing tax credit (LIHTC) qualified allocation plan (QAP) requirements by (1) requiring state housing credit agencies (HCAs) to determine whether a project contributes to a concerted community revitalization plan using agency-established criteria, and (2) directing HCAs to establish criteria accounting for factors deemed appropriate by the agency, including whether the plan is geographically specific, outlines a clear implementation strategy and outcome goals, includes commitments or strategies for public or private investment in nonhousing infrastructure or services, and demonstrates revitalization need. The LIHTC program provides federal tax credits to developers of qualified affordable rental housing, with credits allocated by HCAs through QAPs. These changes apply to allocations under QAPs adopted after December 31, 2025.

This section prohibits qualified allocation plans (QAPs) under the low-income housing tax credit program—i.e., state housing finance agency plans for allocating federal tax credits to developers of affordable rental housing—from considering (1) support or opposition from local or elected officials or (2) local government contributions to a project in selecting credit recipients. Such local contributions may be considered only as part of a broader assessment of a project's ability to leverage outside funding sources and without prioritization over other sources. The amendments apply to QAPs adopted after December 31, 2025.

This section increases the eligible basis to 150% (determined without regard to the new rule and overriding the limitation in current law sec. 42(d)(5)(B)) for the portion of low-income housing tax credit (LIHTC) buildings designated for extremely low-income households—i.e., 20% or more of units (apportioned via the unit fraction under sec. 42(c)(1)(C)) for households with aggregate income not exceeding the greater of 30% of area median gross income or 100% of the federal poverty line—if designated by the state housing credit agency as necessary for financial feasibility. (As background, the LIHTC provides tax credits to developers based on a project's eligible basis to incentivize construction and rehabilitation of rental housing affordable to low-income households; this change increases available credits for projects serving the lowest-income tenants.) The provision applies to buildings receiving housing credit dollar amount allocations after enactment or financed by tax-exempt bond obligations issued after December 31, 2025.

This section eliminates the cap limiting the aggregate eligible basis increase to 30% of a state's housing credit ceiling (under IRC §42(d)(5)(B)(v)) for low-income housing tax credit projects financed by tax-exempt private activity bonds and designated by a housing credit agency as requiring the increase (up to 30% additional eligible basis per project) for financial feasibility. (As background, the low-income housing tax credit finances affordable rental housing through tax credits allocated against a state volume cap, or "housing credit ceiling"; bond-financed projects qualify for a 4% annual credit without using volume cap if at least 50% of aggregate basis is bond-financed.) It also makes technical changes to terminology (removing "State" from the heading and changing "State housing credit agency" to "housing credit agency"). The amendments apply to buildings financed by obligations issued after December 31, 2025.

This section eliminates the basis reduction under the energy efficient commercial buildings deduction (IRC §179D)—previously required when claiming the deduction for low-income housing tax credit (LIHTC, IRC §42) properties—for purposes of determining LIHTC eligible basis. (As background, §179D allows owners of commercial buildings to deduct costs of energy-efficient improvements; prior law reduced LIHTC eligible basis by the deduction amount claimed, lowering available LIHTC credits.) The change applies to buildings receiving LIHTC allocations after enactment or financed by tax-exempt bonds issued after December 31, 2025.

This section revises the conditions under which a foreclosure (or instrument in lieu of foreclosure) terminates the extended use period in the low-income housing tax credit (LIHTC) program. (As background, the LIHTC program—under IRC §42—provides tax credits to developers and owners of qualified low-income rental housing in exchange for maintaining affordability requirements during an initial 15-year compliance period and a subsequent 15-year extended use period.) Specifically, termination now occurs on the 61st day after the taxpayer provides notice to the Secretary and housing credit agency of the acquisition and intent to terminate, unless the Secretary or agency determines the acquisition is part of an abusive arrangement with the taxpayer; the amendments apply to such acquisitions after December 31, 2024.

This section increases the population cap for difficult development areas (DDAs) under the low-income housing tax credit from 20% to 30% for designations after December 31, 2025. (DDAs are census tracts with high construction, land, and utility costs relative to area median gross income, allowing qualifying low-income housing tax credit projects to use income limits increased by 20%.)

This section requires state housing credit agencies, when allocating low-income housing tax credits (LIHTC), to consider the reasonableness of a project's development costs as an additional factor, for allocations made after December 31, 2025. (The LIHTC program, under IRC §42, provides federal tax credits to encourage private development of rental housing affordable to low-income households.)

This section reduces the tax-exempt bond financing requirement for low-income housing tax credit (LIHTC) eligibility from 50% to 25% of a building's (or land's) aggregate basis, for obligations first taken into account under section 146 in calendar years after enactment of the Affordable Housing Credit Improvement Act of 2025 and part of issues issued after December 31, 2025. (As background, the LIHTC provides tax credits to developers of qualified low-income rental housing; projects meeting the bond test qualify for noncompetitive 4% credits without volume cap competition.)

This section requires state qualified allocation plans for the low-income housing tax credit (LIHTC) program to consider, as a selection criterion, the affordable housing needs of (1) enrolled members of an Indian tribe (including tribal agencies or instrumentalities) or Alaska Native regional or village corporations and (2) Native Hawaiians (i.e., U.S. citizens who are descendants of Hawaii's aboriginal people prior to 1778, as evidenced by genealogical records, elder verification, or state birth records). The requirement applies to LIHTC allocations made after December 31, 2025. (As background, LIHTC provides federal tax credits to developers of affordable rental housing, with states using qualified allocation plans to prioritize awards among competing projects based on specified criteria.)

This section designates Indian areas (as defined in section 4(11) of the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA)) and certain housing areas as difficult development areas (DDAs) for purposes of the low-income housing tax credit (LIHTC) under IRC §42(d)(5)(B)(iii), effective for buildings placed in service after December 31, 2025. (As background, the LIHTC provides tax credits to equity investors in developers of qualified affordable rental housing for low-income households, with DDAs eligible for a 30% increase in eligible project basis to offset high construction, land, and utility costs relative to area median incomes.) It further limits DDA treatment for Indian areas to buildings that are assisted or financed under NAHASDA or sponsored by an Indian tribe, tribally designated housing entity, or entity wholly owned or controlled by such tribe or entity.

This section expands the definition of difficult development areas (DDAs) under the low-income housing tax credit (LIHTC)—which receive a 30% increase in eligible basis for credit calculations—to include rural areas (i.e., non-metropolitan areas or areas defined as rural under section 520 of the Housing Act of 1949, as identified by a state's qualified allocation plan). The amendments apply to buildings placed in service after December 31, 2025.

This section eliminates the special low-income occupancy threshold for certain rural projects under the low-income housing tax credit (LIHTC)—which currently allows projects financed under section 515 of the Housing Act of 1949 to qualify using 60% of units occupied by households at or below 60% of area median gross income (instead of the standard 40% at 60% or 20% at 50%)—effective for taxable years beginning after December 31, 2024. (Thus, such rural projects must satisfy standard LIHTC minimum set-aside requirements.)

This section revises IRC §146(i)(6), which treats certain bonds refinancing qualified residential rental projects as refunding issues exempt from the private activity bond state volume cap. (As background, §146 imposes annual per-state volume limits on private activity bonds, including those financing affordable multifamily housing under §142(a)(7) and (d) or single-family mortgages under §143; such refunding treatment allows recycling repaid loan proceeds into new loans without consuming volume cap allocation.) Specifically, the section (1) clarifies that bonds issued during the 12-month period after repayment of a loan from an original issue (95% or more of net proceeds used for §142(d) projects), if the repayment funds a new loan for a §142(a)(7) project or §143(a)(2)(A) or (b) purpose, qualify as a refunding issue (limited to the outstanding principal of the refunded bonds); (2) eliminates the prior one-refunding limit on the original issue, extends the applicable period to 10 years (from 4 years), revises related issuance language, and prohibits application to loan repayments sourced from another loan repayment or financed by a prior refunding issue under this rule; and (3) updates the paragraph heading from "residential rental project bonds as refunding bonds irrespective of obligor" to "bonds as refunding bonds." Amendments in subsection (a) and (c) apply to bonds issued after enactment. Amendments in subsection (b) apply to loan repayments received after July 30, 2008. (Thus, the changes facilitate multiple generations of volume cap-exempt refundings for housing finance loans, subject to new anti-abuse limits on repayment sources.)

This section renames the low-income housing tax credit as the affordable housing tax credit by amending the heading of IRC §42 and the table of contents entry for that section, with conforming amendments throughout the Internal Revenue Code striking "low-income" and inserting "affordable" in six locations. (The credit provides tax incentives to developers for producing and maintaining affordable rental housing for households at or below specified income thresholds.)

This section expresses the sense of Congress that, in addition to expansions under the Affordable Housing Credit Improvement Act of 2025, further steps should be taken to increase transparency of the low-income housing tax credit program (i.e., LIHTC) through data sharing, with the House and Senate working with federal agencies to identify shareable data sources. The section further expresses the sense of Congress that action should be taken to discourage discriminatory land use policies by developing incentives within the LIHTC program to encourage states and localities to reform burdensome zoning regulations and adopt inclusive policies to increase housing supply and affordability.