CDFI Tax Priorities Signed into Law with Landmark Reconciliation Bill
Lily Jin, Associate, Public Policy, OFN
The GOP megabill enacts the New Markets Tax Credit, Low-Income Housing Tax Credit, and Opportunity Zones as a permanent part of the tax code, marking major wins for community development.
Read time: 3 minutes
After several all-nighters in both the Senate and House, Republicans passed the “One Big Beautiful Bill” by their self-imposed July 4 deadline. The bill included key community development tax incentives—permanently extending the New Markets Tax Credit (NMTC), enhancing the Low-Income Housing Tax Credit (LIHTC), and extending Opportunity Zones.
OFN has strongly advocated for these priorities over the last several years. This reconciliation cycle, OFN engaged with members of the House Ways & Means Committee and Senate Finance Committee to ensure that they remain a bipartisan priority, and worked closely with committee leadership and staff to fold NMTC permanency and LIHTC into the bill.
The final reconciliation bill includes a permanent extension of the NMTC with an annual $5 billion allocation expected to generate a total of $1.95 billion in tax credits over seven years. The NMTC provision in the bill differs from reintroduced NMTC extension legislation, in that it is not annually indexed to inflation or exempted from the Alternative Minimum Tax. It also permanently expands LIHTC by increasing the 9% housing credit allocation to 12% and reducing the bond-financed threshold from 50% to 25%. These two provisions are expected to finance 1.22 million additional affordable rental homes over the next decade.
The bill also makes Opportunity Zones permanent and includes provisions designed to direct more investment towards rural and deeper distressed areas. Reporting and transparency requirements from the “Opportunity Zones Transparency, Extension, and Improvement Act,” previously stripped from the 2017 “Tax Cuts and Jobs Act” due to procedural rules, were also reinstated. The survival of the reporting requirements is likely due to a $15 million budget provided for implementation.
The inclusion of these tax incentives in the final reconciliation bill is a significant win for community development advocates and will bolster the work of CDFIs across the country. Now as permanent components of the U.S. tax code, they will drive continuous investment into critical projects that are essential to the growth of rural and low-income communities.
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