What’s in the Affordable Housing Credit Improvement Act?

The Low-Income Housing Tax Credit (LIHTC) is the federal government’s primary program for encouraging the development of affordable rental housing. It functions as a public-private partnership, offering tax incentives to private investors to finance housing for low-income families, seniors, and individuals with disabilities. For decades, it has been the main driver behind the creation of millions of affordable homes.

In response to a nationwide housing affordability crisis, a bipartisan legislative proposal known as the Affordable Housing Credit Improvement Act (AHCIA) has been introduced. The AHCIA aims to expand and strengthen the LIHTC program to increase the supply of affordable rental units and streamline its rules, making it more effective for developers and state housing agencies.

Key Provisions for Increasing Housing Supply

A central element of the AHCIA is the proposed modification of the “50 percent test.” Currently, a housing project must have at least 50% of its total costs financed through tax-exempt private activity bonds to automatically qualify for the 4% LIHTC. This requirement can be a hurdle that makes otherwise viable projects financially impossible.

The AHCIA proposes to lower this threshold from 50% to 25%. By reducing the amount of bond financing required, the bill would enable states to stretch their limited private activity bond volume caps further, supporting a greater number of affordable housing developments. This adjustment unlocks the ability to use more private financing, increasing the overall production of affordable units.

Another provision targets the state housing credit ceiling for the 9% LIHTC. Each state receives an annual allocation of these credits based on its population, a limit that controls how many new affordable housing projects can be financed each year. The proposed legislation seeks to substantially increase the amount of 9% credits available to states.

The bill calls for restoring a 12.5% allocation increase that was in place from 2018 to 2021 but has since expired. It also proposes a further 50% increase in the credit ceiling, phased in over two years. This infusion of credit authority would give state housing finance agencies the capacity to fund a larger number of projects, leading to thousands of additional affordable homes being built annually.

Proposed Enhancements for Specific Communities

The AHCIA includes targeted provisions designed to direct resources toward communities with specific housing needs. One area of focus is rural America, where developing affordable rental housing can be challenging. The AHCIA proposes to make it easier for projects in rural areas, as defined by the U.S. Department of Agriculture (USDA), to receive a “basis boost,” which allows state agencies to increase the amount of tax credits a project is eligible for by up to 30%.

The legislation also recognizes the housing challenges faced by military veterans. The AHCIA proposes to clarify the program’s “general public use” requirement to ensure that developments giving a preference to veterans, victims of domestic violence, or formerly homeless individuals can qualify for the LIHTC. This change helps housing providers serve these populations without jeopardizing their tax credit eligibility.

Furthermore, the AHCIA addresses the housing shortages in Native American communities. The bill proposes a basis boost for projects located in these areas, acknowledging that standard financing models are often insufficient to overcome development barriers on tribal lands. This enhancement would increase the equity generated by the tax credits, providing a financial uplift to make development in these regions more feasible.

Changes to Property Acquisition and Basis Rules

A portion of the AHCIA is dedicated to preserving existing affordable housing. One proposal involves clarifying the “right of first refusal” for nonprofit organizations. This right allows a nonprofit partner in a LIHTC project to purchase the property at a below-market price after the initial 15-year tax credit compliance period ends.

Recent legal challenges have seen some investors attempt to block these sales to sell the properties at a higher market rate. The AHCIA seeks to strengthen this provision to ensure nonprofits can more easily acquire these properties, guaranteeing their long-term affordability. The bill clarifies that the right can be exercised without investor approval and that the purchase includes all property assets, such as operating reserves.

The legislation also proposes modifications to the rules governing the acquisition credit, which is used to finance the purchase and rehabilitation of existing buildings. One change addresses the “10-year rule,” which prohibits claiming acquisition credits on a property that was placed in service within the last 10 years. The AHCIA would introduce more flexibility by allowing for waivers in certain circumstances to preserve at-risk affordable housing.

The bill also includes other adjustments to the “eligible basis,” which is the total cost of a project used to calculate the amount of tax credits it can receive. It proposes basis boosts for projects that serve extremely low-income tenants or for developments located in high-opportunity areas with access to good schools and jobs.

Legislative Status and Outlook

While the comprehensive AHCIA has not passed on its own, some of its provisions have advanced. In May 2025, key measures, including the restoration of the 12.5% allocation increase and lowering the private activity bond financing threshold to 25%, were included in the One Big Beautiful Bill Act of 2025, which passed the House of Representatives and is awaiting Senate consideration.

The AHCIA has a history of strong bipartisan support. In a previous session of Congress, the bill garnered support from nearly 60% of all members, including significant portions of the House Ways and Means Committee and the Senate Finance Committee. This momentum suggests that strengthening the LIHTC remains a high priority and that these reforms are moving closer to becoming law.