What the One Big Beautiful Bill Act Means for LIHTC and NMTC Sponsors
Originally published on September 30, 2025
When President Donald J. Trump signed the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, it included long-term investments in low-income communities. For sponsors of Low-Income Housing Tax Credit (LIHTC) and New Markets Tax Credit (NMTC) projects, this is more than an incremental tweak; it’s a structural change.
The law introduces a permanent 12% increase to each state’s 9% LIHTC allocation and makes the NMTC program permanent with $5 billion in annual credits indexed for inflation. Together, these shifts create fresh capital channels and demand more agile planning from developers, syndicators and investors alike.
Understanding the Pre-OBBBA Landscape
Prior to the OBBBA, affordable housing and community development faced several constraints rooted in tax code:
- 9% LIHTC allocations were based on a $3.00 per capita multiplier (or $3.455 million minimum for smaller states), limiting flexibility even for states with robust housing finance agencies.
- 4% LIHTCs, which are tied to tax-exempt bonds, were often inaccessible to mixed-income or adaptive-reuse projects due to the 50% bond-financed threshold, a structural barrier to feasibility.
- The NMTC program, authorized through 2025, was caught in a cycle of expiring extensions, complicating long-term investments and discouraging new entrants.
Despite market demand and policy momentum, developers often had to leave good deals on the shelf. That bottleneck just got looser.
LIHTC Changes: More Volume, Lower Barriers
The OBBBA makes significant modifications to IRC § 42 by:
- Raising the LIHTC per capita multiplier from $3.00 to $3.36 (a 12% increase) starting in 2026
- Increasing the small-state minimum to $3.87 million
- Reducing the bond-financed threshold for 4% LIHTC projects from 50% to 25% of aggregate basis
This unlocks a broad range of previously infeasible deals, especially in urban infill and adaptive-reuse projects where tax-exempt leverage was too difficult to structure.
NMTC Permanence: More Investors, Smoother Deals
Under the new law, IRC § 45D now reads “calendar years after 2025” with an annual NMTC cap of $5 billion, adjusted for inflation. Notably, the law also exempts NMTCs from the AMT, a long-sought reform that opens the door to new classes of investors like S corporations and REITs (which were previously sidelined due to unfavorable tax treatment).
These enhancements stabilize the community development ecosystem, making multi-phase projects and commitments beyond a single allocation year more predictable.
Credit Layering and New Structuring Flexibility
Before OBBBA, combining LIHTC with NMTC or Historic Tax Credit (HTC) funding often led to trade-offs due to volume caps or conflicting eligibility requirements. The new landscape provides more breathing room:
| Structure | Limitation (Pre-OBBBA) | Opportunity (Post-OBBBA) |
|---|---|---|
| 4% LIHTC + NMTC | 50% bond threshold, NMTC sunset | 25% threshold, NMTC permanence |
| 9% LIHTC + NMTC-funded facilities | Crowded 9% allocations | Expanded 9% volume enables combo funding |
| LIHTC + HTC | Scarce volume | More flexibility to bridge HTC financing gaps |
These combinations can further benefit from ongoing incentives like Opportunity Zone deferrals and bonus depreciation for FF&E assets, both of which survived reconciliation efforts.
Developer Considerations for 2026 and Beyond
Implementation milestones start fast and stretch long:
- Q4 2025: IRS will issue the new per capita LIHTC Revenue Procedure
- Jan. 1, 2026: 12% LIHTC uplift and 25% bond test become active
- Spring 2026: First NMTC Notice of Allocation Availability under the new $5B cap
Developers should proactively work with state agencies revising Qualified Allocation Plans (QAPs) and recalibrate models to match the reduced PAB leverage requirement. Projects previously deemed infeasible may now deserve a second look.
Market Impacts: More Credits, More Pressure
While these changes will likely expand capital access, they could also introduce:
- Modest yield compression in 9% LIHTC pricing as supply expands
- Construction labor bottlenecks, requiring earlier lock-in on GMP contracts
- Increased investor demand, particularly from newly eligible AMT-exempt entities
State housing finance agencies with ambitious housing agendas (like California, Florida and Texas) are expected to prioritize allocations for extremely low-income (ELI) and supportive housing units. This trend will likely raise the service delivery expectations placed on developers.
With more equity, streamlined bond rules and permanent NMTC funding, the OBBBA redefines what’s possible in affordable housing and community development. Whether you’re a seasoned syndicator or revisiting shelved deals, this is the moment to rethink your pipeline.
At James Moore, we help developers plan with precision and build with confidence. Our tax professionals are ready to assist with modeling, compliance, and capital stacking strategies. Contact us today to make the most of this new era in housing tax credits.
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