Affordable housing finance
25% bond-financing test
The post-2025 threshold of IRC § 42(h)(4): bond-finance at least 25% of aggregate basis (was 50%) and every dollar of qualified basis earns 4% credits.
Definition
Under IRC § 42(h)(4), a project financed with tax-exempt bonds subject to the § 146 volume cap earns 4% credits on its entire qualified basis — no ceiling allocation required — if a threshold share of the aggregate basis of building and land is bond-financed. Pub. L. 119-21 (2025) cut that threshold from 50% to 25% for bonds issued after 2025, per the statute's effective-date rules. Below the threshold, only the bond-financed slice of basis earns credits without an allocation.
Why it matters in an underwrite
The old 50% test forced deals to issue roughly twice the bonds their capital structure needed, with issuance costs, negative arbitrage and volume-cap consumption to match. At 25%, bond sizing follows the real debt need: costs of issuance drop, cap stretches across more projects, and marginal acquisition/rehabs that could not carry an oversized issue now pencil. Watch timing on pipeline deals — the 25% test keys off bonds issued after 2025, so structures straddling the date need counsel on the effective-date rules before pricing credits.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.