Low-Income Housing & Opportunity Zones

Low-Income Housing and Opportunity Zones

Low-Income Housing Tax Credit (LIHTC)

A dollar-for-dollar federal tax credit to private developers or investors who build or rehabilitate low-income rental housing. This program, created in 1986, has been the primary tool used by governments to encourage affordable housing construction in the US, covering about 90% of all new affordable housing projects. 

Jul. 4, 2025: New credit provisions enacted in budget 

  • Increases the 9% credit to 12% permanently, pushing LIHTC related investment beyond $15 billion in the next ten years 
  • Permanent 25% Bond threshold reduction for the Private Activity Bond (PAB), used in conjunction with the 4% credit. Conditional on 5% or more of costs being financed with PABs issued after December 31, 2025 
  • OBBBA reinstates 100% bonus depreciation permanently for qualified property, which will make investments with the 4% LIHTC credit more attractive and stretch each dollar further by allowing developers to remove 100% of the cost of properties from their taxable income if they meet qualifying conditions

Jan. 20, 2025 (retroactive start date) 

  • The 100% bonus depreciation rate applies for all properties acquired and placed in service after January 19th, 2025. 

Jan. 1, 2026: LIHTC provisions take effect 

  • 12% credit takes effect. 
  • For projects placed in service after December 31, 2025, the PAB test threshold will be 25% instead of 50%. 

Opportunity Zones

Qualified districts that enable investors to have tax benefits if they invest in funds that finance development in those districts. There are around 8700 designated Opportunity Zones in the United States, which represent low-income communities with a poverty rate of over 20% or a median family income of less than 70% of the statewide or metropolitan area median. 

Jul. 4, 2025: OBBBA makes Opportunity Zones a permanent part of the tax code

  • Narrows the definition of low-income community by reducing it from 80% of the median area income to 70%, and making contiguous tracts ineligible for OZ designation. 
  • Census tracts with a median family income of over 125% the median area income are totally ineligible for OZ designation. 
  • Applies the 25% designation limit to Puerto Rico as well (ie only 25% of eligible LCIs can receive designation, at the governor’s discretion).  
  • Basis step up and deferral: capital gains invested in OZ funds can defer tax payments on a rolling basis for up to five years. 
  • In non-rural OZs, there will be a 10% step up for investments that are held in OZ funds for over 5 years.  
  • New rural provisions: provide a 30% step up for investments held in rural OZ funds for over 5 years.  
  • More stringent reporting requirements: more detailed transparency requirements from OZ fund usage, and $15 million reserved for implementation. 

Jul. 1, 2026: Governors must submit OZ designation list to be considered for 2027 OZ status.  

  • Designation is a decennial process led by governors 

Jan. 1, 2027: New Opportunity Zone rules kick in.  

  • A later start date gives local governments some time to adjust capital plans and strategy, considering HOME, CDBG, bonds, and more. 

Source: Novogradac & Company LLP, Nelson Mullins

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