Affordable housing finance
Tax-exempt private activity bonds
Volume-capped private activity bonds under IRC §§ 142(d)/146 for rental housing — the financing that makes a project eligible for as-of-right 4% credits.
Definition
State and local issuers sell private activity bonds whose interest is tax-exempt under IRC § 103 when the proceeds finance qualified residential rental projects meeting § 142(d)'s income set-asides (20-50 or 40-60); housing issues also consume state volume cap under § 146. Their LIHTC significance is § 42(h)(4): a project meeting the bond-financing threshold earns 4% credits on all its qualified basis with no ceiling allocation. In California, CDLAC allocates the cap that makes the issue possible.
Why it matters in an underwrite
The bonds are a gate, not just debt: hold enough of them through placed-in-service (25% of aggregate basis for post-2025 issues) and the entire deal earns credits — which is why many "bond deals" issue short-term, cash-collateralized bonds that exist mainly to unlock the credits. The gate has a toll: issuer fees, the § 147(f) public-approval (TEFRA) hearing, and a competitive CDLAC queue where scoring, not feasibility, decides when you close.
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.