Federal Impacts
One Big Beautiful Bill's Impact on Planning
What's in the tax bill, what's out, and what it means for planners.
On July 4, President Trump signed into law the One Big Beautiful Bill Act (HR 1). The tax reconciliation legislation extends the expiring tax provisions from the 2017 Tax Cuts and Jobs Act, a primary focus for congressional Republicans.
To partially offset the costs of extending and expanding tax provisions, the bill also makes changes and cuts to some social safety net programs and repeals several energy and climate-related tax credits from the Inflation Reduction Act.
Passage of the complex and controversial package was made possible using the reconciliation process, which allows approval by a simple majority in both chambers. While the bill was ultimately approved, Democrats vigorously opposed the measure, and Republican leaders had to work hard to hold their small-margin majorities together for adoption.
Changes to programs like Medicaid, nutrition assistance, or energy policy shifts will certainly have broader impacts on communities. The bill also directly addresses some specific areas of focus for planners, including several important housing and infrastructure provisions.
In addition to what is included in the final bill, what is not included is equally telling. Several items debated on the floor were ultimately left out of the final version, but could have big planning and municipal finance impacts.
Here is a breakdown of what's in the One Big Beautiful Bill, what's out, and what it means for planners.
Important Changes Impacting Planners
Expands the Low-Income Housing Tax Credit
Low-Income Housing Tax Credit (LIHTC) allocations are expanded by 12 percent, and the Private Activity Bond (PAB) financing threshold — commonly known as the "50% test" — is lowered permanently from 50 percent to 25 percent. Some aspects of LIHTC modernization included in both the House-passed version of the bill and the stand-alone Affordable Housing Credit Improvement Act were omitted but could return by other legislative means.
Low-Income Housing Tax Credit In Action
LIHTC breathes new life into casket factory
Read more about how planners were able to use the Low Income Housing Tax Credit to empower adaptive reuse projects, including turning an old casket factory into affordable housing.
Extends the New Markets Tax Credit
New Markets Tax Credit was set to expire at the end of 2025. The tax bill permanently extends this important economic development tool.
Extending and Improving Opportunity Zones
Opportunity Zone incentives were established in the 2017 tax bill, and their expansion was a top policy priority for APA this year. This package permanently authorizes Opportunity Zones (OZs) and makes several changes in how the incentive operates, including:
- Creating rolling, 10-year OZ designations, allowing for the designation of additional qualified OZs, under a modified definition of "low-income community."
- Setting a new OZ designation period on July 1, 2026, taking effect on January 1, 2027, with new designation periods to follow every 10 years
- Defining a low-income community as a census tract with (1) a poverty rate of at least 20 percent, or (2) census tracts with a median family income (MFI) of less than 70 percent (down from 80 percent) of the metro area MFI (or statewide MFI for census tracts outside a metro area)
- Excluding census tracts with an area MFI of 125 percent or greater, which do not meet the definition of a low-income community.
- Eliminating the ability to designate contiguous census tracts that do not meet the low-income community eligibility as OZs
- Lowering the "substantial improvement" threshold for existing structures in rural areas from 100 percent to 50 percent
- Requiring additional reporting from qualified opportunity funds, qualified rural opportunity funds, qualified OZ businesses, and qualified rural OZ businesses, while imposing penalties for noncompliance
- Requiring the Treasury Department to publicly report data on qualified opportunity funds and rural opportunity funds
Opportunity Zones and Other Federal Opportunities for Change
APA Policy priority
Learn more about the programs, legislation, and federal resources that are top priorities for APA and planners in 2025.
Repeals Energy and Climate-Related Tax Credits and Funds
Many housing and infrastructure-related energy tax credits established in the 2022 Inflation Reduction Act are phased out, with unobligated balances rescinded.
Among the major tax credits affected are:
- Green and Resilient Retrofit Program
- Greenhouse Gas Reduction Fund
- Housing-Related Energy Efficiency Tax Credits
- Neighborhood Access and Equity Grants
Provisions Not Included That Impact Planners
As the bill moved through the process, several provisions were debated, discussed, but ultimately discarded. Some of these policies may come back through other legislation, with discussions already underway about a second reconciliation bill, a comprehensive housing package, and a transportation reauthorization due in 2026.
The provisions left out of the final bill package include:
Neighborhood Homes Investment Act
This bipartisan Neighborhood Homes Investment Act would create a tax credit for home construction and renovation, designed to cover the "appraisal gap" common in many weaker market communities. The credit would support the preservation and renovation of houses where the appraised value is insufficient to cover financing for needed improvements. This credit would help not only with housing supply but also support neighborhood vitality and economic development.
Although not included in the tax bill, the measure could be advanced as a stand-alone measure or combined in a future package.
Tax-Exempt Status Changes for Bonds & Nonprofits
The debate on the tax bill included, in its early stages, a discussion about limiting or eliminating the existing tax-exempt status for municipal bonds. These bonds provide essential financing support for key infrastructure projects. Changes to the bonds would have had a significant impact on local government finance.
Congressional Republicans also examined tax exemption provisions related to non-profit organizations. The tax bill did not remove the non-profit exemption, but did make some adjustments that affect some non-profits, specifically universities and certain foundations.
The Affordable Housing Bond Enhancement Act
This legislation would expand and preserve the supply of affordable homes by improving Mortgage Revenue Bonds (MRBs) and Mortgage Credit Certificates (MCCs).
Despite bipartisan support for the legislation, the provisions of the bill were ultimately not incorporated into the housing and tax section of the bill.
Historic and Rehabilitation Tax Credits
The tax bill did not include proposals to expand existing historic tax credits, nor did it create any new credits focused on projects involving adaptive reuse, rehabilitation, infill development, and commercial conversions.
There are also elements of LITHC modernization contained in the Affordable Housing Credit Improvement Act that were originally included in the House-passed version but were dropped in the final legislation.
Changes Around Gas Tax and Highway Trust Fund
The bill did include a new fee for electric vehicles (EVs) designed to ensure EVs contribute to the Highway Trust Fund. In addition, funding was provided for aviation safety and an overhaul of air traffic control systems.
However, the bill did not tackle larger issues related to the gas tax and the solvency of the Highway Trust Fund. Those issues could be addressed when Congress turns to the surface transportation reauthorization due next year.
Looking Forward
One near-term impact of the tax bill may be to create more pressure for spending cuts in the FY26 appropriations process. The two issues are not directly related, but a major feature of the tax bill debate was how to "offset" the costs of tax cuts. Congressional conservatives pressed for greater cuts than were ultimately included. Those same pressures are likely to reemerge as Congress sets funding levels in the appropriations process.
While the tax bill was a decidedly partisan exercise, some of the elements of the debate have bipartisan support and could reemerge in another piece of legislation. Housing is a particularly promising area for action. The Senate Banking Committee is expected to move forward in the coming weeks on a major housing bill that may create momentum for action that attracts support for some items not tackled in the tax measure.
Congressional Republicans are also discussing whether to use the reconciliation process for a second bill. While agreement on what such a bill might contain would be challenging, there is potential for further unilateral action. Pressure from Capitol Hill for even more cuts or changes to social safety net programs may be a tough sell for some Republicans who expressed concerns during the debate on the One Big Beautiful Bill Act. These votes would be essential for any additional bill.
APA will continue to engage in these debates to reflect and advance the values and priorities of good planning and great communities for all.
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