By Aaron Mayer, Director of Sherbert Consulting and Moxie Investment Funds, amayer@sherbertconsulting.com
Early this morning, the U.S. House of Representatives narrowly passed H.R. 1 (“One Big Beautiful Bill”). At more than a thousand pages, it certainly is big – and it includes significant changes for the low-income housing tax credit, for energy credits, and for Opportunity Zones.
The changes would be positive for LIHTC, potentially allowing for the creation of more affordable housing over the next five to ten years. For 9% projects, it would increase the state credit ceiling for the next four years; and for 4% projects, it would reduce the tax-exempt bond financing test from 50% to 25%. Additionally, it would include Indian areas and rural areas as “difficult development areas” on a temporary basis.
Things are more challenging on the energy side. The 45L Residential Clean Energy Credit, which many LIHTC developers have considered pursuing over the last few years, would be repealed at the end of 2025 (or at the end of 2026 if construction has already begun). Other credits that would see early termination include 25C, 25D, 25E, 30C, 30D, 45V, and 45W. Additionally, 45U, 45V, 45Y, and 48E would be subject to earlier phase-out and would no longer be transferable.
As has been anticipated, the bill would renew the Opportunity Zone program. New tracts would be designated to begin in 2027, replacing current OZ designations that would end in 2026. Gains invested in Qualified Opportunity Funds after 2026 could be deferred to as late as December 31, 2033. There would also be new reporting requirements, an element that was originally proposed as part of the program but was not included in the final version of the 2017 act.
Obviously, things are likely to change quite a bit as the Senate takes up the bill over the summer, so The Sherbert Group will continue to monitor its progress.