House Moves Major Tax Bill Forward

The U.S. House of Representatives passed its 'One Big Beautiful Bill Act' in a narrow, late-night vote. The broad tax measure now goes to the Senate for consideration.

The bill renews provisions of the 2017 Tax Cut and Jobs Act that would otherwise expire at the end of the year and incorporates a wide range of other tax provisions that affect important tools for planners.

For planners, the bill's housing, infrastructure finance, clean energy, and economic development elements are especially critical. The bill includes a mixed bag of policies:

• Expansion of the Low-Income Housing Tax Credit (LIHTC)
• Renewal of Opportunity Zones with programmatic changes
• Increased support for rural housing in LIHTC and Opportunity Zones
• Phased elimination of clean energy tax credits from the Inflation Reduction Act
• Repeal of Neighborhood Access and Equity grants from the Inflation Reduction Act
• New annual fee on all electric and hybrid vehicles

LIHTC Takeaways

The LIHTC provisions restore and extend the 12.5 percent state allocation Housing Credit cap increase that expired at the end of 2021 for 2026–2029.

The requirement for tax-exempt bond financing for a multifamily Housing Bond to receive the full 4 percent Housing Credits is also lowered from 50 percent to 25 percent.

Rural communities would see additional benefits from changes to the definition of 'Difficult Development Areas.'

Changes for Opportunity Zones

For Opportunity Zones (OZs), the bill both renews the tax incentive and makes a number of substantive changes.

Initial OZ designations are extended to 2028, and a new round of designations is slated for 2027 through 2033 with an increased focus on rural communities via a requirement that one-third of designations be in rural areas.

The program would also see a narrowing of the definition of 'low-income community,' as well as new reporting requirements.

What's Missing?

In addition to what is in the bill, what was left out is also important. While the bill included some useful housing and development provisions, other ideas did not make it into the package.

In the bill, planners will not see:

• The Neighborhood Homes Investment tax credit, which helps to cover the 'appraisal gap' in slower-growth communities
• Extension of the New Market Tax Credit
• An increase in the Private Activity Bond cap
• New workforce housing tools

The package originally contained a provision to allow federal public land sales for housing in Utah and Nevada, but this item was removed as part of the negotiations that brought the bill to the floor.

The House bill does not eliminate the broad tax exemption for municipal bonds or nonprofit organizations, but it does increase levies on university endowments and make changes affecting private foundations.

In the House, much of the debate and negotiations centered on raising the deduction for state and local taxes (SALT) and cuts and changes to social safety net programs, including Medicaid and the Supplemental Nutrition Assistance Program. Republicans also debated the balance of tax cuts to deficit reduction. These tensions were eventually settled in the House but are sure to resurface as the debate moves to the Senate.

What's Next?

Senate action is aided by the parliamentary process known as 'reconciliation,' which allows for passage by a simple majority. While the majority needed might be simple, the road ahead is anything but.

Senate Republicans are sure to make changes to the House-passed bill, requiring a negotiation to settle on a compromise version. With narrow Republican majorities, leaders cannot afford many defections. And the calendar will be a factor, as the bill will carry a debt ceiling increase that needs to be enacted by August.

The tax reconciliation bill will carry most of the key priorities of the White House and Republican congressional leadership, so the political stakes for passage are high. Work on the measure will occur as Congress also begins consideration of annual spending bills. These measures are separate from the tax bill and won't benefit from reconciliation rules, but the context of offsetting costs of the tax bill will loom over the appropriations process. Reducing critical program funding would offset any benefits from improving housing-related tax credits.

Planners focused on existing funding uncertainties will now need to factor in potential tax-related changes as they assess options and opportunities to fill funding gaps and advance local plans and projects.

Top image: The New York Times - Kenny Holston