IRS Announces Increases to LIHTC and PAB Per-Capita Multipliers, Boosting Critical Tools in the Development Toolbox 

Late last month, the Internal Revenue Service (IRS) announced an increase to the Low Income Housing Tax Credit (LIHTC) per-capita multiplier, providing a modest boost to the LIHTC market for 2025. Under the new guidance, states’ credit ceilings for the nine percent LIHTC are now either $3 multiplied by population or a $3,455,000 minimum for less populous states. This represents an increase of ten cents per capita, or $95,000 for the small-state minimum.

Additionally, the IRS increased the Private Activity Bond (PAB) per-capita multiplier to $130 per person or $388,780,000 for small states. This raises the federally mandated ceiling for the maximum amount of PABs that state governments can issue in a given year, known in the industry as the “Volume Cap.” Though PABs fund a variety of programs and initiatives, they are critical for the low-income housing industry, as an affordable housing project must attain at least 50 percent of its funding via PABs to qualify for the by-right four percent LIHTC.

The nine percent LIHTC limits represent the highest in the program’s history after consecutive increases since 2022. The PAB limit matches the per-capita multiplier’s previous high, originally set in 2021.

The nine percent LIHTC and PAB multipliers boost represents a modest strengthening for a program that will likely continue to receive strong engagement as the low-income housing market enters a period of potential uncertainty under a new federal administration. “The Housing Credit is the primary tool to encourage the production and preservation of affordable rental housing,” says Kari Downes, president of Enterprise Community Partners’ housing credit investments business, noting that the program has financed over 4 million homes since its inception as a component of the 1986 Tax Reform Bill.

These increases are welcome, but not wholly unexpected as the country continues to battle inflation pressures of recent years.

Since 2003, the IRS has adjusted the per-capita LIHTC multiplier based on inflation, as an attempt to balance the supply and demand for credits to reach maximum market efficiency. Those efforts seem to be working; a Novogradac analysis from earlier this year found that nearly 99 percent of states’ nine percent LIHTC authority is used nationwide, showing that the program is consistently able to help build affordable housing across the entire country.

The PAB per-capita multiplier increase is a similarly welcome boost to the industry, providing more dollars to an area of funding, which has been heavily subscribed in recent years. “States have a finite amount of PAB authority to use for financing multifamily affordable housing,” Downes says. “Approximately two-thirds of states have demand for PAB volume cap that either exceeds or equals their available bond authority. In states where the cap is a binding constraint, even small increases can lead to more four percent LIHTC projects moving forward.”

Though the increased PAB multiplier will certainly provide boosted funding for projects looking for four percent LIHTCs, some advocates argue that to really stretch a state’s volume cap, the federal government must address the 50 percent test. For example, in 2024, the House of Representatives attempted to pass the Tax Relief for American Families and Workers Act of 2024, which would have lowered the 50 percent threshold to 30 percent. However, despite bipartisan support in the House, the bill stalled in the Senate.

Lowering the PAB requirement for four percent deals would likely spur increased creation and preservation of affordable housing; a similar decrease in 1990 helped kickstart the then-fledgling industry; and a recent Novogradac analysis estimated that the proposed threshold decrease for 2024 could have created and preserved an additional 186,310 rental units.

Though funding from PABs and LIHTCs represents a significant source of project revenue, Downes stresses that advocates should continue to work with representatives to protect other vital funding sources in the affordable housing landscape. “The increased Housing Credit and PAB per-capita multipliers may slightly ease constraints by increasing the overall resources,” she says, but cautions that “these adjustments often fail to keep pace with the rising cost of construction and demand for affordable housing.”

Downes says that “one of the best” avenues of support that advocates can pursue is the passage of legislation, like the Affordable Housing Credit Improvement Act (AHCIA), a bipartisan bill that seeks to expand and strengthen the existing LIHTC. Among other things, Downes points to an expansion of the per capita allocation of nine percent credits, as well as a lowering of the PAB financing threshold (i.e., the 50 percent test) as powerful components of the legislation.

She notes that while the per-capita multiplier increases are certainly helpful as the country continues to address its substantial affordable housing shortage, “We need Congress to pass the AHCIA if we really want to make progress in addressing the housing supply shortage that is affecting urban neighborhoods, suburban communities, rural towns and everywhere in between.”