Senate Finance Committee Releases Reconciliation Bill Text Including Permanent LIHTC Provisions, Homeownership Supply Proposal Excluded
What happened? On Monday afternoon, the Senate Finance Committee released its text of tax and healthcare provisions of the reconciliation package, which included key housing and community development priorities. The Senate text includes a permanent expansion of the Low-Income Housing Tax Credit (LIHTC), as well as a permanent extension of the New Markets Tax Credit. Unfortunately, the Senate bill text, like the House-passed reconciliation bill, continues to exclude the bipartisan Neighborhood Homes Investment Act, which would boost affordable housing for homeownership.
While the Senate Finance proposal would make a significant – and permanent – investment in affordable housing through the LIHTC provisions, it also includes deeper cuts to Medicaid than the House-passed reconciliation text, which would reduce access to healthcare for the low-income individuals who would benefit from these housing and community investments. See below for a summary of key provisions that NAAHL is monitoring.
There have been news reports that some Republican Senators have concerns about the tax and healthcare provisions, including the treatment of clean energy tax credits and Medicaid cuts, as well as the overall price tag of the bill and its impact on the federal deficit. The Finance Committee was the final Senate Committee to release its proposed changes, and the Congressional Budget Office (CBO), which estimates the cost of all proposed legislation, has not yet released its analysis of the Finance Committee’s text.
What’s Next? The Senate will now work to advance all of the combined reconciliation text from all Committees through the Senate floor, and Senate leadership has stated that they hope to have the bill completed by July 4th. This timeline is in part driven by the need for Congress to raise the debt ceiling. Treasury Secretary Bessent recently wrote asking Congress to raise the debt ceiling by mid-July to avoid any market disruptions or threat to the U.S. credit rating. Both the House-passed reconciliation bill and the Senate Finance Committee language increase the debt ceiling (the increase is $4 trillion in the House and $5 trillion in the Senate text). Unlike the House, the Senate Finance Committee is not expected to hold a markup of its legislation.
Reconciliation legislation only requires a majority vote in the Senate, but with the bill unlikely to receive any Democratic votes, Senate Republicans can only lose 3 votes for the bill to pass. And any legislation must then go back to the House, where Republicans have raised concerns about the bill’s cost and specific provisions, including the Senate tax language on the State and Local Tax (SALT) deduction. The House passed the One Big, Beautiful Bill Act by a 215-214 vote after lengthy negotiations, including on the SALT provision. It is likely that there will be additional changes to the Senate language before the bill receives a vote.
NAAHL supports expanding and strengthening LIHTC and permanently extending the New Markets Tax Credit to support housing and community development benefiting low-income families and communities. We continue to urge Republican leadership to include the Neighborhood Homes Investment Act to support affordable housing supply for homeownership.
Click here for the Senate Finance Committee Text.
Click here for the Senate Finance Committee Section-by-Section.
Key Finance Committee Reconciliation Tax Provisions
LIHTC Permanency
Permanently provides a 12% increase in the allocation of 9% credits
House-passed bill provided a 12.5% increase in the allocation of 9% credits for 3 years
Permanently reduces the private activity bond financing requirement for 4% credits from 50% to 25%
House-passed bill reduced the private activity bond requirement for 3 years
Note: The House-passed bill also included a temporary basis boost for LIHTC projects in rural and Tribal areas by designating these areas as difficult development areas. The Senate does not include that provision.
Opportunity Zone Permanency and Changes
Permanently authorizes Opportunity Zones in the tax code with new, 10-year designations made by governors (subject to Treasury approval) beginning in 2026 and every 10 years going forward.
House-passed bill created a single new round of Opportunity Zones that ran from 2027 through 2033, and required a minimum percentage of zones designated by each governor for the new round to be rural areas.
Modifies the definition of low-income community to:
Having a median household income which does not exceed 70% of the metro area median household income/statewide median household income for non-metro areas; or
Having a poverty rate of 20% AND
For non-metro tracts, the census tract’s median income must be less than 125% of statewide median family income; or
For metro area tracts, the census tract’s median income must be less than 125% of the metro area median income.
These definition changes closely track the House changes.
Census tracts contiguous to low-income census tracts no longer qualify for OZ designation.
This provision was also included in the House text.
Changes the schedule for step-up basis for capital gains invested in a Qualified Opportunity Fund (QOF). Under the Senate text, investments would receive an incremental step-up basis beginning in the first year of the investment.
Investors get additional step-up in basis on the following schedule:
1% in each of years 1-3;
2% in years 4 and 5; and
3% in year 6.
Gains must be recognized in year 7 (with reduction in gains based on the stepped-up basis).
For QOF investments held for 10 years or more, gains on those investments continue to be excluded from taxable income.
This is a different schedule than the stepped-up basis in the House, which provided that investors could recognize the 10% stepped up basis in year 5 of an investment but did not provide any stepped-up basis for shorter term investments.
Provides triple the amount of basis boost in each year for investments in qualified rural opportunity funds.
Defines rural as any area other than a city or town with more than 50,000 inhabitants, and any urbanized area contiguous and adjacent to such a city or town.
While the House-passed bill also provided triple the basis boost for investments rural areas, the stepped-up basis accrued on a different schedule and the House used a different definition of rural.
Lowers the substantial improvement threshold in rural areas (as defined in the Senate language) from 100% to 50%.
This provision was also included in the House-passed bill.
Adds reporting requirements.
The House also added reporting requirements.
New Markets Tax Credit Permanency
Permanently extends the New Markets Tax Credit.
The House-passed bill did not include a New Markets Tax Credit extension.
Phase-out and restrictions on Clean Electricity Investment Credit
Phases out the tax credit on two schedules, depending on the energy source.
For wind and solar investments, investors would receive only 60% of the credit value if construction begins in 2026, 20% if construction begins in 2027, and nothing in 2028 or after.
For other clean electricity sources, investors would receive 100% of the credit if construction begins in 2033, 75% if construction begins in 2034, 50% if construction begins in 2035, and nothing if construction begins after 2035.
No credit is allowed for any project with material assistance from a prohibited foreign entity that begins construction after December 31, 2025, and prohibited foreign entities cannot claim the tax credit.
The House-passed bill eliminated the tax credit for projects involving any energy source other than nuclear that begin construction more than 60 days after the bill’s passage or are placed in service after December 31, 2028. For advanced nuclear facilities, construction must begin by December 31, 2028, to receive the credit.
The House included further restrictions on assistance from foreign entities.
Changes to Corporate Charitable Giving Deductions
Limits deductions for corporate charitable giving to amounts that exceed 1% of a corporation’s taxable income and that are less than 10% of the corporation’s taxable income, with the ability to carry forward disallowed amounts for up to 5 years.
The House-passed bill also included this provision.
Repeal of other Inflation Reduction Act Energy Efficiency Provisions
The Senate bill also repealed:
Energy Efficient Home Improvement Credit
Residential Clean Energy Credit
Energy Efficient Commercial Buildings Deduction
New Energy Efficient Home Credit
The House-passed bill repealed the Energy Efficient Home Improvement, Residential Clean Energy, and New Energy Efficient Home Credits. It did not repeal the Energy Efficient Commercial Buildings Deduction.
Increase in the Debt Ceiling
The Senate bill includes a $5 trillion increase in the debt ceiling.
House-passed bill included a $4 trillion increase.
Key Reconciliation Bill Provisions from Other Senate Committees
Banking Committee Provisions
Eliminates CFPB funding from the Federal Reserve.
House-passed bill reduced the amount the CFPB could draw from the Federal Reserve each year from 12% to 5% of the Federal Reserve’s operating expenses.
Reduces pay for Federal Reserve employees not working on monetary policy functions to 70% of FDIC employee pay.
House-passed bill did not include this provision.
Rescinds unobligated balances of the HUD’s Green and Resilient Retrofit Program (GRRP) created in the Inflation Reduction Act.
House-passed bill also included this provision.
Limits funding for the Office of Financial Research by limiting its assessment authority.
House-passed bill also included this provision.
Eliminates the Public Company Accounting Oversight Board and transfers its functions to the Securities and Exchange Commission.
House-passed bill also included this provision.
Sweeps funds from the SEC’s Reserve Fund and prevents the fund from being used in the future.
House-passed bill did not include this provision.
Delays implementation of the CFPB’s Section 1071 Small Business Data Collection rule required under the Dodd-Frank Act by 10 years.
House-passed bill did not include this provision.
Provides $1 billion under the Defense Production Act to be used for purposes determined by the Administration.
House-passed bill did not include this provision.
Energy and Natural Resources Committee Provisions
Provides for the sale of public lands owned by the Bureau of Land Management and the Forest Service in the following states: Alaska, Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Utah, Washington, or Wyoming.
The latest text, which has been updated, would require that any land be used “for the development of housing or to address associated infrastructure to support local housing needs.”
The House-passed bill did not include this provision.