The Affordable Housing Credit Improvement Act of 2025 aims to significantly enhance the effectiveness and reach of the Low-Income Housing Tax Credit (LIHTC) program. This legislation introduces comprehensive reforms across various aspects of the credit, from state allocation formulas to tenant eligibility and project development rules. A notable change is the renaming of the program to the Affordable Housing Tax Credit, reflecting a broader focus on housing affordability.

To increase the supply of affordable housing, the bill substantially increases state LIHTC allocations by raising both the per capita amount and the minimum allocation, with future adjustments for cost of living. It also reduces the tax-exempt bond financing requirement from 50% to 25% for certain buildings, making it easier to leverage bond financing for affordable housing projects. These changes are designed to provide states with more resources and flexibility to fund developments.

The bill expands and clarifies tenant eligibility rules, particularly for vulnerable populations. It modifies student occupancy rules, providing exceptions for students who are veterans, disabled, parents, or victims of domestic violence or human trafficking. Furthermore, it codifies rules allowing units to remain low-income even if tenant income rises, and requires LIHTC-supported housing to protect victims of domestic abuse by prohibiting lease termination based on related criminal activity and allowing lease bifurcation.

Several provisions streamline credit eligibility and project development. The bill establishes clear rules for reconstruction or replacement after a casualty loss, preventing credit recapture if repairs are made within a specified period. It also repeals the population cap for qualified census tracts and increases the population cap for Difficult Development Areas, making more areas eligible for increased credit. Additionally, certain relocation costs for occupants during rehabilitation can now be counted as rehabilitation expenditures.

The legislation enhances oversight by requiring housing credit agencies to consider the reasonableness of development costs and prohibiting the consideration of local approval or contributions in project selection. It specifically addresses housing needs in Native American and rural areas by including them as Difficult Development Areas and requiring consideration of Native American housing needs in allocation plans. Finally, a Sense of Congress emphasizes the importance of program transparency and discouraging discriminatory land use policies to further housing affordability.