The 50%→25% Rule That Just Made 4% Affordable Deals Pencil Again

The 50%→25% Rule That Just Made 4% Affordable Deals Pencil Again

Most of the 2025 tax law's housing impact comes down to a number almost nobody outside affordable finance can explain: the "50% test." Understand it and you'll understand why 2026 is suddenly a much better year to build affordable housing.

Quick background. There are two flavors of Low-Income Housing Tax Credit. The competitive "9%" credit is scarce and lottery-like. The "4%" credit is theoretically available to anyone — but only if at least 50% of the project's cost was financed with tax-exempt private-activity bonds. Those bonds come from a capped state pot, and demand blew past supply years ago. So the 50% test quietly rationed the "unlimited" credit: no bond cap, no 4% deal.

The 2025 law permanently cut that threshold from 50% to 25%.

Why that's enormous

If a deal now needs only 25% bond financing instead of 50%, each project consumes roughly half the scarce bond cap. Same pot of bonds, nearly twice as many 4% deals. For a state like California that burns through its bond authority every year, that's not a tweak — it's a capacity unlock. Novogradac estimates the combined LIHTC changes will finance about 1.22 million additional affordable units from 2026 to 2035.

> 25% — the new bond-financing threshold for 4% deals, down from 50%. It roughly doubles what the state's bond cap can build.

The rest of the package

Two more things landed in the same law. The competitive 9% credit got a permanent 12% bump in state allocations starting in 2026 — more of the scarce stuff. And Opportunity Zones were made permanent, with fresh 10-year designations rolling from 2026 and tighter targeting (the income cutoff dropped to 70% of area median). For anyone who stacks LIHTC with OZ equity, the toolkit just got materially better and, for once, durable.

The honest read

This is the rare federal change that shows up directly in a pro forma. If you shelved 4% deals because you couldn't get bond cap, pull them back out — the math moved. If you do OZ, permanence removes the "will it still exist?" risk that made investors twitchy. None of this fixes construction costs or entitlement timelines, and bond cap is still finite. But the 50%-to-25% change is the closest thing to found money the affordable world has seen in years. Go find it.

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