On July 4th, President Trump signed into law the One Big Beautiful Bill Act (OBBB), following a fast-paced and highly strategic legislative path, leveraging the budget reconciliation process to bypass the usual 60-vote filibuster threshold in the Senate. As the OBBB moved from the House, to the Senate, then back to the House for final passage on July 3rd, the final bill has kept important affordable housing provisions intact, namely:
- Permanent 25% Bond Threshold Reduction: The 50% Private Activity Bond (PAB) financing threshold has been permanently lowered to 25% for land and building costs of properties placed in service after Dec. 31, 2025 (so long as 5% or more of the aggregate land and building costs are financed with PABs issued after Dec. 31, 2025).
- Permanent 12% Low-Income Housing Tax Credit (LIHTC) Allocations: The final bill permanently increases 9% allocations for LIHTC by 12%, starting in 2026. This increase, combined with the reduction in the bond test, is expected to push total LIHTC-related investment beyond the $15 billion range over the next ten years.
- Permanent Opportunity Zones (OZs): The bill cements OZs as a permanent part of the tax code, with new OZs being designated every 10 years. The new determination period begins on July 1, 2026, and the new designations will take effect on Jan. 1, 2027.
- Stricter OZ Criteria: tracts eligible for OZ designation are narrowed from 80% to 70% of the Area Median Income (AMI). Census tracts with a median family income above 125% of AMI are categorically disqualified, even if they otherwise meet the poverty or income-based criteria.
- Minimal Deferral and Basis Boosts: Capital gains invested in OZ funds for at least 5 years can be deferred from taxation, with a gradual basis step-up of up to 10%. The final bill also emphasizes rural OZs, which qualify for an enhanced 30% basis step-up. To qualify as a rural OZ, at least 90% of fund capital must be invested in areas with populations under 50,000. Rural OZs are also subject to a lower substantial improvement threshold of 50% rather than the standard 100%. Investments made after Dec. 31, 2026, are eligible for these basis boosts.
The final bill also makes permanent the 100% bonus depreciation for property acquired and placed in service on or after Jan. 19, 2025. The 100% bonus depreciation increases the incentive for tax credit investments. State and Local Tax (SALT) deductions for individuals are also increased from $10,000 to $40,000 from 2026 to 2029. For households with income above $500,000, the cap remains at $10,000. The SALT cap reverts to $10,000 for all households in 2030. This provision likely comes from a compromise by Senate Republicans, who replaced a permanent SALT cap of $40,000 with this provision.
The final bill does not include several proposed enhancements from earlier drafts, such as ordinary income eligibility for OZ deferral benefits or alignment of the substantial improvement test with the LIHTC rehabilitation standard. These omissions may still be revisited in future legislation or administrative guidance.
With the OBB now signed into law, the Treasury Department and IRS are expected to issue implementation guidance in the coming months. Investors and developers should prepare for updated regulations governing OZ designations, LIHTC allocation increases, and bond financing rules – many of which take effect in 2026 or 2027.
The Nelson Mullins team will continue to monitor implementation milestones and guide the release of final regulations and designations.
This article was written with assistance of summer associate Ben Smith.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
