Overview
Title
To amend the Internal Revenue Code of 1986 to reform the low-income housing credit, and for other purposes.
ELI5 AI
H.R. 2725 is a bill that wants to help more people find nice places to live by changing some rules about how homes for families with less money are made and who can live in them. It also aims to make building these homes fairer for everyone and protect people who need extra help, like those who were hurt by someone they live with.
Summary AI
H.R. 2725, also known as the "Affordable Housing Credit Improvement Act of 2025," seeks to amend the Internal Revenue Code of 1986 to enhance the low-income housing credit. The bill outlines reforms to state allocation formulas, tenant eligibility, credit eligibility, and more, aiming to increase housing accessibility for low-income families, rural areas, Native American communities, and veterans. It also includes measures to address student occupancy rules, tenant voucher payments, and protections for victims of domestic violence, among other updates. Additionally, the legislation emphasizes the importance of transparency and eliminating discriminatory land use policies to boost affordable housing availability.
Published
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Bill Statistics
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Language
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AnalysisAI
The bill titled "Affordable Housing Credit Improvement Act of 2025" is an amendment to the Internal Revenue Code of 1986 aimed at improving various aspects of low-income housing credit, with broader goals to facilitate affordable housing. It introduces significant changes across allocations, tenant eligibility, credit determination, and other areas, while also placing emphasis on increased transparency and accountability.
General Summary of the Bill
This legislation proposes wide-ranging reforms to enhance the effectiveness of the low-income housing credit program. It seeks to increase state allocations for housing, broaden eligibility criteria, support Native American and rural housing efforts, reform bonds related to housing projects, and shift from supporting exclusively low-income housing to more broadly defined affordable housing initiatives. Notably, it incorporates measures to protect vulnerable groups, like victims of domestic abuse, within the housing system.
Significant Issues
Several issues arise from the proposal, including:
Complex Language and Calculations: The bill comprises complex tax code language and calculation methods, particularly around state allocations and income tests, making it difficult for non-experts to interpret.
Discretionary Measures: Sections like the allocation for reconstruction periods after a casualty loss give discretion to agencies, which might result in inconsistent applications.
Retroactive Effective Dates: Some provisions have retroactive effective dates, potentially causing confusion for entities that have already acted under previous guidelines.
Impact on Local Governance: The prohibition of considering local approvals in housing projects could impact local governance dynamics.
Potential Discrimination Concerns: Focused criteria for specific groups, such as tribes in allocation plans, could lead to perceptions of favoritism or discrimination against others.
Broad Public Impact
For the general public, these changes could mean a more diverse range of accessible housing options across different regions. However, the bill's complexity may delay understanding and implementation, particularly for smaller communities or individuals who lack expert legal or tax help.
Impact on Specific Stakeholders
Housing Credit Agencies: Agencies will need to navigate new calculation algorithms and criteria definitions, potentially requiring additional resources to ensure consistency.
Local Governments: These entities might experience decreased influence on housing projects due to the limitation on considering their approval or contributions, which could stir political debate or resistance.
Native American and Rural Communities: The explicit focus on Native American and rural areas as difficult development sites may positively impact these communities by increasing access to resources and support for housing projects.
Developers and Taxpayers: Larger developers might exploit potential tax benefit gaps or leverage new rehabilitation expenses, raising concerns about equal distribution. At the same time, taxpayers might not fully benefit due to the ambiguity surrounding the changes from "low-income" to "affordable" housing definitions.
In conclusion, while the bill aims to expand and refine the affordable housing sector, stakeholders must carefully interpret and apply its provisions to avoid potential misinterpretations and ensure equitable outcomes across diverse population groups.
Financial Assessment
Financial Allocations and Implications in H.R. 2725
State Allocations and Financial Calculations
The bill proposes significant changes to the way state allocations are calculated for low-income housing credits. Specifically, it amends the Internal Revenue Code to replace fixed dollar amounts with a "per capita amount" and a "minimum amount". For the year 2025, the per capita amount is set at $4.25, and the minimum amount is established at $4,876,000. From 2026 onwards, these amounts are subject to adjustment based on a cost-of-living index.
This section’s complex calculations could pose challenges for stakeholders trying to plan fiscally, as noted in the issues. The difficulties stem from the bill using a cost-of-living adjustment mechanism that will require stakeholders to perform specific calculations to project future amounts accurately. Without clear examples or explanations, this may affect fiscal planning and budget forecasting efforts for state agencies responsible for housing.
Cost Adjustments for Development and Rehabilitation
Section 307 provides an increase in tax credits for projects serving extremely low-income households. Specifically, if 20% or more of residential units in a building are designated for households with incomes not exceeding 30% of the area median gross income or the federal poverty line, the eligible basis for these units will be 150% of their regular basis. This adjustment is intended to make these projects more financially viable and should help increase housing availability for the most underserved populations.
Section 303 allows certain relocation costs to be treated as rehabilitation expenditures. This means costs like moving occupants, third-party service payments related to relocation, and temporary housing can be capitalized rather than expensed immediately. While this provides a financial benefit to developers, concerns arise that it might disproportionately favor larger developers who can better leverage these benefits, as noted in the issues.
Energy Efficiency and Tax Credit Basis
In Section 309, an exception is introduced, eliminating the reduction in eligible tax credit basis for low-income housing properties that claim deductions for energy-efficient commercial buildings. By excluding these reductions, the section effectively allows developers to retain a higher basis for calculating tax credits, which may incentivize the adoption of energy-efficient measures without sacrificing credits. This change aligns with the broader push towards sustainable development.
Impact of the "Affordable" Redefinition
The proposed change in Section 701 from "low-income housing credit" to "affordable housing tax credit" might seem semantic but has broader implications. Changing the terminology could expand or restrict the scope of who qualifies for these benefits. This redefinition might lead to ambiguity as stakeholders may struggle to interpret what "affordable housing" specifically encompasses. The lack of a clear definition could potentially alter the eligibility landscape, affecting which groups benefit from federal support.
In summary, H.R. 2725 introduces various financial mechanisms aimed at improving low-income housing accessibility and sustainability. By altering how funds are allocated, adjusted, and utilized, the bill seeks to address a broad range of housing issues, though its complexity could challenge implementation and interpretation among stakeholders.
Issues
The definition and application of the 'average income test' introduced in Section 201 lacks clarity and requires cross-referencing with other documents, potentially causing confusion for stakeholders about the amendment's impact on exempt facility bonds.
The language in Section 101 regarding increases in state allocations involves complex calculations that may be difficult for readers to understand without specific examples or supplementary explanations, potentially affecting fiscal planning.
Section 301 grants discretion to housing credit agencies to define 'reasonable periods' for reconstruction or replacements after casualty losses, which could lead to inconsistent applications between different agencies.
The amendment in Section 205 on protecting victims of domestic abuse in low-income housing adds complexities to lease agreements, particularly concerning lease bifurcation and occupants' rights enforcement, potentially leading to increased litigation.
Section 306's prohibition of considering local approval and contributions in housing project selection criteria might limit local government influence over local projects, which could be politically controversial.
The retroactive effective date of March 23, 2018, in Section 201 for the average income test applicability might create confusion for entities that have already made compliance decisions prior to the enactment.
Section 312's requirement for increased cost oversight and accountability in development projects does not specify who will determine 'reasonable' development costs, leading to potential subjectivity and inconsistency in enforcement.
The change from 'low-income' to 'affordable' in Section 701 could broaden or narrow the scope of tax credit benefits without a clear definition of 'affordable', potentially leading to ambiguity in eligibility and benefits.
The amendments in Section 401 related to selection criteria under qualified allocation plans might be politically sensitive as they focus on affordable housing needs for tribes, potentially seen as favoring specific groups.
Section 303's allowance for certain relocation costs to be treated as rehabilitation expenditures could benefit larger developers, possibly leading to inequities in tax benefits distribution.
Section 402 might cause confusion as it heavily relies on definitions from other Acts, such as the Native American Housing Assistance and Self Determination Act of 1996, potentially leading to misinterpretation.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title; table of contents Read Opens in new tab
Summary AI
The Affordable Housing Credit Improvement Act of 2025 is designed to make housing more accessible by increasing state allocations, reforming tenant eligibility and credit eligibility rules, enhancing Native American and rural assistance, and refining tax credits and bonds related to housing. The Act also emphasizes the importance of transparency and accountability through improved data access and oversight measures.
101. Increases in State allocations Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to increase the amounts allocated to states for certain purposes, revising how per capita and minimum amounts are calculated. Starting in 2025, these amounts will be adjusted annually based on cost-of-living changes, aiming to ensure allocations keep pace with economic conditions.
Money References
- In general.—Clause (ii) of section 42(h)(3)(C) of the Internal Revenue Code of 1986 is amended— (1) in subclause (I), by striking “$1.75” and inserting “the per capita amount”, and (2) in subclause (II), by striking “$2,000,000” and inserting “the minimum amount”.
- (b) Per capita amount; minimum amount.—Section 42(h)(3) of the Internal Revenue Code of 1986 is amended by striking subparagraphs (H) and (I) and inserting the following: “(H) PER CAPITA AMOUNT.—For purposes of subparagraph (C)(ii)(I), the per capita amount shall be determined as follows: “(i) CALENDAR YEAR 2025.—For calendar year 2025, the per capita amount is $4.25.
- “(ii) CALENDAR YEAR 2026.—For calendar year 2026, the per capita amount is the product of— “(I) 1.25, and “(II) the dollar amount under clause (i) increased by an amount equal to— “(aa) such dollar amount, multiplied by “(bb) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- If the amount determined after application of the preceding sentence is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.
- “(iii) CALENDAR YEARS AFTER 2026.—In the case of any calendar year after 2026, the per capita amount is the dollar amount determined under clause (ii) increased by an amount equal to— “(I) such dollar amount, multiplied by “(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- “(I) MINIMUM AMOUNT.—For purposes of subparagraph (C)(ii)(II), the minimum amount shall be determined as follows: “(i) CALENDAR YEAR 2025.—For calendar year 2025, the minimum amount is $4,876,000.
- “(ii) CALENDAR YEAR 2026.—For calendar year 2026, the minimum amount is the product of— “(I) 1.25, and “(II) the dollar amount under clause (i) increased by an amount equal to— “(aa) such dollar amount, multiplied by “(bb) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- “(iii) CALENDAR YEARS AFTER 2026.—In the case of any calendar year after 2026, the minimum amount is the dollar amount determined under clause (ii) increased by an amount equal to— “(I) such dollar amount, multiplied by “(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- Any amount increased under the preceding sentence which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.”. (c) Effective date.—The amendments made by this section shall apply to calendar years beginning after December 31, 2024. ---
201. Average income test applicability to exempt facility bonds Read Opens in new tab
Summary AI
This section modifies the Internal Revenue Code to include an additional way for projects to qualify for tax-exempt facility bonds through an average income test, which is defined under another section of the code. These changes apply to choices made after March 23, 2018.
202. Codification of rules relating to increased tenant income Read Opens in new tab
Summary AI
The section amends rules in the Internal Revenue Code related to increased tenant income for low-income housing. Specifically, it clarifies that a unit occupied by tenants initially earning 60% or less of the area median income remains as low-income housing even if their income rises, provided the rent is still restricted, and introduces an exception where some tenants with initial incomes between 60% and 80% of the median can still qualify under adjusted income limits. These changes will apply starting in the 2025 tax year.
203. Modification of student occupancy rules Read Opens in new tab
Summary AI
The section modifies rules regarding student occupancy in low-income housing, stating that a housing unit solely occupied by students under 24 in full-time higher education will not qualify as a low-income unit. However, exceptions are made for certain federal programs and individuals who meet specific criteria, like being married, a person with disabilities, or having experienced domestic violence or human trafficking. These changes will take effect for tax years starting after December 31, 2025.
204. Tenant voucher payments taken into account as rent for certain purposes Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to specify that tenant voucher payments are considered as rent for certain projects that meet specific requirements. This change will affect rent calculations for tax purposes starting from the year 2026.
205. Requirement that low-income housing credit-supported housing protect victims of domestic abuse Read Opens in new tab
Summary AI
This section amends the Internal Revenue Code to ensure that low-income housing can protect tenants who are victims of domestic abuse by prohibiting evictions based on domestic violence-related criminal activities. It also allows victims to seek enforcement of this protection in court, clarifies that victims can continue living without being considered new tenants if their abuser is evicted, and specifies that public housing must also serve victims of such violence.
206. Clarification of general public use requirement relating to veterans, etc Read Opens in new tab
Summary AI
The section clarifies that veterans are considered part of a specified group for certain federal programs under the Internal Revenue Code. It also revises rules for residential rental projects, stating units meet public use requirements even with certain occupancy preferences, with these changes applying to buildings and bonds issued at any time.
301. Reconstruction or replacement period after casualty loss Read Opens in new tab
Summary AI
This section of the bill changes the Internal Revenue Code to ensure that no additional taxes will be applied when a building's value is reduced due to a disaster, as long as the damage is repaired within a set time frame. If repairs cannot be done within 25 months due to the nature of the disaster, this period can be extended by up to 12 more months. The amendments also clarify that a building won't lose its status as a low-income building simply because of the disaster, and these rules apply to disasters that happened after a specific past date.
302. Modification of previous ownership rules; limitation on acquisition basis Read Opens in new tab
Summary AI
This section updates the Internal Revenue Code rules for acquiring buildings by limiting the tax basis if the building was in service within the last 10 years, and it specifies adjustments for inflation for these calculations. It also revises certain ownership rules and applies these amendments to buildings placed in service after December 31, 2024.
303. Certain relocation costs taken into account as rehabilitation expenditures Read Opens in new tab
Summary AI
The section allows certain costs related to the relocation of occupants during building rehabilitation, which are not covered by section 280B, to be considered as rehabilitation expenses for tax purposes. It specifies that these rules apply to expenses incurred after December 31, 2024, and does not imply any changes for costs incurred before January 1, 2025.
304. Repeal of qualified census tract population cap Read Opens in new tab
Summary AI
The section explains a change to the tax code, specifically removing certain clauses related to qualified census tracts, with the modifications taking effect for designations made after December 31, 2025.
305. Determination of community revitalization plan to be made by housing credit agency Read Opens in new tab
Summary AI
This section of the bill introduces amendments to the Internal Revenue Code that require housing credit agencies to establish their own criteria for determining if a project supports a community revitalization plan. These criteria should consider factors such as geographic specificity, implementation goals, investment strategies for public or private infrastructure, and the demonstrated need for revitalization. The changes will apply to housing credit allocations made after December 31, 2025.
Money References
- PLAN.—For purposes of subparagraph (B)(ii)(III), the criteria which shall be established by a housing credit agency for determining whether the development of a project contributes to a concerted community development plan shall take into account any factors the agency deems appropriate, including the extent to which the proposed plan— “(i) is geographically specific, “(ii) outlines a clear plan for implementation and goals for outcomes, “(iii) includes a strategy for applying for or obtaining commitments of public or private investment (or both) in nonhousing infrastructure, amenities, or services, and “(iv) demonstrates the need for community revitalization.”. (c) Effective date.—The amendments made by this section shall apply to allocations of housing credit dollar amounts made under qualified allocation plans (as defined in section 42(m)(1)(B) of the Internal Revenue Code of 1986) adopted after December 31, 2025.
306. Prohibition of local approval and contribution requirements Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to prohibit using local government support, opposition, or contributions as criteria for selecting projects under a qualified allocation plan, except when considering the project's ability to attract funding and not placing local contributions above others. These changes will apply to plans adopted after December 31, 2025.
Money References
- (a) In general.—Paragraph (1) of section 42(m) of the Internal Revenue Code of 1986, as amended by section 305, is further amended— (1) by striking clause (ii) of subparagraph (A) and by redesignating clauses (iii) and (iv) thereof as clauses (ii) and (iii), and (2) by adding at the end the following new subparagraph: “(F) LOCAL APPROVAL OR CONTRIBUTION NOT TAKEN INTO ACCOUNT.—The selection criteria under a qualified allocation plan shall not include consideration of— “(i) any support or opposition with respect to the project from local or elected officials, or “(ii) any local government contribution to the project, except to the extent such contribution is taken into account as part of a broader consideration of the project's ability to leverage outside funding sources, and is not prioritized over any other source of outside funding.”. (b) Effective date.—The amendments made by this section shall apply to allocations of housing credit dollar amounts made under qualified allocation plans (as defined in section 42(m)(1)(B) of the Internal Revenue Code of 1986) adopted after December 31, 2025.
307. Increase in credit for certain projects designated to serve extremely low-income households Read Opens in new tab
Summary AI
This section of the bill increases the tax credit for certain buildings that serve extremely low-income households. To qualify, at least 20% of the units must be for households with very low incomes, and the increased credit is necessary for the building's financial feasibility; this applies to housing credits allocated after the law is enacted or after 2025 for certain obligations.
Money References
- In general.—Paragraph (5) of section 42(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: “(C) INCREASE IN CREDIT FOR PROJECTS DESIGNATED TO SERVE EXTREMELY LOW-INCOME HOUSEHOLDS.—In the case of any building— “(i) 20 percent or more of the residential units (determined as if the imputed income limitation applicable to such units were 30 percent of area median gross income) in which are designated by the taxpayer for occupancy by households the aggregate household income of which does not exceed the greater of— “(I) 30 percent of area median gross income, or “(II) 100 percent of an amount equal to the Federal poverty line (within the meaning of section 36B(d)(3)), and “(ii) which is designated by the housing credit agency as requiring the increase in credit under this subparagraph in order for such building to be financially feasible as part of a qualified low-income housing project, subparagraph (B) shall not apply to the portion of such building which is comprised of such units (determined in a manner similar to the unit fraction under subsection (c)(1)(C)), and the eligible basis of such portion of the building shall be 150 percent of such basis determined without regard to this subparagraph.”. (b) Effective date.—The amendment made by this section shall apply to buildings which receive allocations of housing credit dollar amount after the date of enactment of this Act, or in the case of buildings that are described in section 42(h)(4)(B) of the Internal Revenue Code of 1986, for obligations that are part of an issue the issue date of which is after December 31, 2025. ---
308. Increase in credit for bond-financed projects designated by State agency Read Opens in new tab
Summary AI
The section of the bill increases the credit for certain bond-financed projects by amending parts of the Internal Revenue Code related to state housing credit agencies. The amendments will apply to buildings with an issue date after December 31, 2025.
309. Elimination of basis reduction for low-income housing properties energy efficient commercial building deduction Read Opens in new tab
Summary AI
The section focuses on changing the rules about how energy efficiency deductions affect the financial records for low-income housing properties. It clarifies that certain energy efficiency deductions won't reduce the basis for determining eligibility for affordable housing tax credits, and this change will apply to specific buildings allocated housing credit amounts after the law is enacted, or those described in another law after December 31, 2025.
Money References
- (a) Energy efficient commercial buildings deduction.—Subsection (e) of section 179D of the Internal Revenue Code of 1986 is amended— (1) by striking “reduction.—For purposes” and inserting “reduction.— “(1) IN GENERAL.—For purposes”, and (2) by adding at the end the following new paragraph: “(2) EXCEPTION FOR AFFORDABLE HOUSING PROPERTIES.—Paragraph (1) shall not apply for purposes of determining eligible basis under section 42.”. (b) Effective date.—The amendments made by this section shall apply to buildings which receive allocations of housing credit dollar amount after the date of the enactment of this Act and to buildings that are described in section 42(h)(4)(B) of the Internal Revenue Code of 1986 taking into account only obligations that are part of an issue the issue date of which is after December 31, 2025.
310. Restriction of planned foreclosures Read Opens in new tab
Summary AI
The section proposes changes to the Internal Revenue Code involving foreclosures, specifying that if a taxpayer's property is acquired by foreclosure, they must inform the Secretary and housing credit agency, and the foreclosure can proceed unless stopped by these authorities due to intentional arrangements. These changes will be effective for foreclosures happening after December 31, 2024.
311. Increase of population cap for difficult development areas Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to increase the population cap for "difficult development areas" from 20% to 30%. This change applies to designations made after December 31, 2025.
312. Increased cost oversight and accountability Read Opens in new tab
Summary AI
The change to the Internal Revenue Code of 1986 adds a requirement to assess if the development costs of a project are reasonable when allocating certain tax credits. This applies to credits given after December 31, 2025.
313. Tax-exempt bond financing requirement Read Opens in new tab
Summary AI
The amendment modifies the Internal Revenue Code to change the requirement for tax-exempt bond financing of certain buildings, lowering the financing threshold from 50% to 25% for obligations considered after the Affordable Housing Credit Improvement Act of 2025. This change will apply to any buildings or land financed by specific obligations with issue dates after December 31, 2025.
401. Selection criteria under qualified allocation plans Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code of 1986 to include affordable housing needs for certain tribal members as a criterion for allocating tax credits. These amendments will take effect for credits allocated after December 31, 2025.
402. Inclusion of Indian areas as difficult development areas for purposes of certain buildings Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to include "Indian areas" as difficult development areas for certain tax credit purposes, specifying that these areas must be defined under the Native American Housing Assistance and Self Determination Act. Additionally, eligible buildings must be funded by this act or connected to an Indian tribe or housing entity to be recognized, and these provisions are effective for buildings placed in service after December 31, 2025.
501. Inclusion of rural areas as difficult development areas Read Opens in new tab
Summary AI
The bill section modifies the Internal Revenue Code to include rural areas as difficult development areas for tax purposes, meaning rural areas will get special consideration for tax credits. This change will apply to buildings built after December 31, 2025.
502. Uniform income eligibility for rural projects Read Opens in new tab
Summary AI
The section changes how income eligibility for rural projects is determined by removing a specific sentence in the existing law. This change will take effect for tax years starting after December 31, 2024.
601. Revision and clarification of the treatment of refunding issues Read Opens in new tab
Summary AI
The section revises and clarifies rules regarding refunding bonds, including extending the time limit for issuing such bonds from 4 to 10 years and specifies conditions for loan repayment to be considered a refunding issue. These changes apply to certain bonds from the specified date, with some rules applying retroactively to loan repayments made after July 30, 2008.
701. Affordable housing tax credit Read Opens in new tab
Summary AI
The bill proposes changing the term "low-income" to "affordable" in several parts of the tax code, specifically relating to the housing tax credit and associated sections, to potentially make these benefits more inclusive. Additionally, it updates the official heading for the housing credit in the tax code to "Affordable housing credit."
801. Sense of Congress Read Opens in new tab
Summary AI
Congress believes that in order to make the affordable housing program better, there should be more transparency by sharing data and cooperation between the House, Senate, and federal agencies. Additionally, Congress thinks it's important to stop unfair land use rules and encourage local governments to change or remove strict zoning laws to make housing more affordable.