House GOP Tax Plan Pitches LIHTC Expansion

More than a year ago, Massachusetts Gov. Maura Healey announced state and federal funding for 26 projects that would eventually net more than 1,900 housing units.

One of those projects was Cruz Companies’ 135 Dudley Street, a two-building project planned in Boston that will include more than 100 condominium units and 60 rentals. Dan Cruz, senior vice president at the firm, said the project has a long road to closing the financing.

“We’ve been waiting these past 16 or so months to be able to get the go-ahead to begin the closing process,” he said in an interview last month. “We’ve been told that this will be a first-quarter 2026 deal, which means two years after the award, we can close.”

This is not a problem unique to Massachusetts: Others, including New York, have long seen demand for bond financing exceed availability. Cruz hopes that Congress will take action to help projects like his, namely by expanding federal low-income housing tax credits so that states aren’t as overextended.

This week, the House Ways & Means Committee took a step in that direction, is advancing a draft plan to implement some of President Donald Trump’s top policy priorities. The bill includes extensions to provisions of the 2017 tax law, including the Opportunity Zones program, as well as long-sought changes to low-income housing tax credits. It is now on its way to the House budget committee.

Under the tax credits program, which has helped finance more than 3.5 million housing units since 1986, developers sell credits to private investors, who use them to offset their federal taxes. The sale proceeds, in turn, help fund affordable housing projects.

States have a certain number of credits they can allocate each year, known as 9 percent credits. Another type, known as 4 percent credits, can automatically be accessed for projects that are at least 50 percent financed by private activity bonds, known as the 50 percent rule. States, however, have an annual limit (known as volume cap) on how many private activity bonds they can issue. That cap can leave developers like Cruz — who is financing the Dudley Street project using 4 percent credits — waiting in line for bond financing to become available.

In Massachusetts’ case, it has been under $1 billion over recent years. In New York, meanwhile, the annual volume cap has hovered around $2.4 billion over the past few years, and the state uses most of its limit on housing.

“We were one of the first states that was using all of its volume cap,” said Nixon Peabody’s Deborah VanAmerongen, who serves as federal policy chair at the New York State Association for Affordable Housing, which has advocated for expanding the tax credit program. “Many other states have found themselves in a similar situation.”

The draft bill includes language that would reduce the 50 percent threshold to 25 percent, potentially freeing up bond financing for other projects. It would also increase the allocation of 9 percent credits by 12.5 percent through 2029. An identical increase was in place between 2018 and 2021.

The New York Housing Conference estimates that these changes could lead to the construction of nearly 120,000 more affordable housing units in New York over the next decade. Much of that bump, or 30,000 units, can be attributed to changing the 50 percent test.

Housing advocates have long called for an expansion of the tax credit program. Last year, the House of Representatives approved similar changes, but the Senate did not follow suit. Ahead of the release of the House’s bill, the Senate and House reintroduced legislation, the Affordable Housing Credit Improvement Act, calling for the 50 percent change, the allocation increase and other changes.

Still, VanAmerongen thinks inclusion of low-income housing tax credits alongside myriad other issues signals that Congress views the issue as a priority this year.

New York Housing Conference’s Rachel Fee agreed, saying that it wasn’t clear leading up to the bill’s release that housing tax credits were a top priority of the Trump administration.

“I think this just says that affordable housing is no longer a high-cost blue city issue, it is an issue in every city in America,” Fee said. “Our elected officials are starting to understand that.”

Of course, there’s a long road ahead to passing a final “big beautiful bill,” and it is unclear what will make the cut. At least two New York Republicans have vowed to block a proposal that increases the limit on the federal income tax deduction for state and local taxes from $10,000 to $30,000. Representative Mike Lawler told Bloomberg that the increase was “woefully inadequate.”

The bill also includes an extension of the Opportunity Zone program, which allows investors to defer capital gains taxes if they park those profits in a fund that infuses money into areas designated as distressed. The measure calls for the expiration of those zone designations on December 31, 2026, and for new zones to be selected starting January 1, 2027, and permits capital gains to be deferred through 2033. Proponents had pushed for a permanent program.