06/10/2026
BUILDLAB
6 min readThe 4% LIHTC Bond Test Just Dropped to 25%: What It Means for 2026 Feasibility
The One Big Beautiful Bill Act permanently cut the 4% LIHTC’s private-activity-bond financing threshold from 50% to 25% starting in 2026 — the biggest change to the program in decades. Here is how it reshapes deal feasibility.
For decades, a 4% LIHTC deal needed private-activity bonds covering at least 50% of aggregate basis to unlock the full credit. The One Big Beautiful Bill Act permanently lowered that threshold to 25% for bonds issued after December 31, 2025. Because private-activity bond (PAB) volume cap is the scarce resource in 4% deals, the same cap now stretches across roughly twice as many projects — the biggest structural change to the program in a generation.
What actually changed
- The 50% aggregate-basis bond-financing test drops to 25% for bonds issued after Dec 31, 2025.
- At least some share of the building must still be bond-financed — this isn’t a path to zero bonds.
- The change is permanent, not a temporary boost.
- Each state’s limited PAB volume cap effectively covers far more deals.
Why it reshapes feasibility
More projects can pencil with less bond debt — but the equity side moved too. 4% credit pricing has softened into the mid-80-cent range in early 2026, so the gap math is different in both directions. The old rules of thumb mislead now; pipeline deals deserve a fresh underwrite under the 25% test.
What to do
Re-underwrite the pipeline under the 25% test, revisit which deals now pencil, and fold the technology and infrastructure scope into the new basis math early — so it’s funded inside the deal instead of being value-engineered out when the gap tightens.
