Housing Bond Bill Boosts Home Improvement Loans to $75K, Eases Refi Rules, and Overhauls Reporting

The "Affordable Housing Bond Enhancement Act" is set to make some notable adjustments to how government-backed bonds support affordable housing and homeownership. This isn't a single massive overhaul, but rather a series of targeted changes to the Internal Revenue Code. Key moves include new, more detailed reporting requirements for states on their use of these special bonds, known as private activity bonds (Sec. 2). States will also get more flexibility to channel unused bond authority – or 'carryforwards' – specifically towards housing projects (Sec. 3). For homeowners, the bill could make refinancing certain mortgages easier (Sec. 4) and significantly increases the financing limit for qualified home improvement loans to $75,000 (Sec. 5).

Keeping Tabs: Tighter Reporting on Bond Bucks

Transparency is getting a boost. Starting in calendar years after this Act is enacted, states will need to provide the federal government with a more comprehensive annual report by December 31st on their private activity bond activities (Sec. 2). Think of these bonds as a tool states use to offer lower-cost financing for specific public-good projects, including affordable housing. The new reports, mandated by an amendment to section 146 of the tax code, must detail the state's total bond limit (its 'State ceiling'), how much unused authority they carried over from previous years, the total amount of bonds issued for various purposes (like those described in subsection (f)(5) of section 146, which covers a range of qualified projects), and what happened to any expired or unused bond capacity. This means policymakers and the public should get a clearer view of how these financial resources are being deployed.

More Wiggle Room: Steering Unused Bond Money to Housing

What happens when a state doesn't use all its allotted bond authority in a given year? This bill gives them more options, particularly for housing. Under amendments to section 146(f), while decisions to carry forward unused bond authority are generally final, there's a new exception for housing-related purposes (Sec. 3). An issuing authority can now transfer a 'housing carryforward' to another agency within the same state that's equipped to issue qualified mortgage bonds (helping people buy homes) or certain exempt facility bonds for affordable rental projects (those defined under section 142(a)(7) of the tax code). They can also redesignate a general carryforward specifically for these housing needs. This could funnel more resources into building and financing homes, though states can still set their own rules for these transfers. These changes apply to carryforward elections made after December 31, 2025.

A Leg Up for Homeowners: Easier Refis and Bigger Reno Loans

If your mortgage was financed with certain tax-exempt mortgage revenue bonds, refinancing could become less complicated. Section 4 of the Act amends Section 143(i)(1) of the tax code so that, for eligible homeowners who still meet principal residence (subsection (c)(1)) and income requirements (subsection (f)) at the time of refinancing, the new loan won't be treated as a 'new mortgage' for bond program purposes. This could open doors for homeowners to potentially lower their payments or tap into equity, effective for refinancing loans made on or after the Act's enactment.

And for those planning major home upgrades, there's a significant financial boost. The bill dramatically increases the limit for qualified home improvement loans financed through these programs from $15,000 to $75,000 (Sec. 5, amending section 143(k)). That $75,000 figure will also be adjusted for inflation in years after 2026 (using 2024 as a base), meaning more borrowing power for substantial renovations. This applies to loans made after December 31st of the year the Act is enacted.

Fine-Tuning Tax Rules: Recapture Relief and MCC Adjustments

Selling a home financed with a mortgage revenue bond often comes with concerns about a 'recapture tax' – essentially paying back some of the federal subsidy. This bill eases those rules. If a mortgage is fully repaid within four years of the 'testing date,' the holding period percentage used to calculate this tax for subsequent years drops to zero (Sec. 6, amending section 143(m)(4)(C)). Additionally, the bill shortens a key timeframe in the recapture calculation from 9 years to 5 years (amending sections 143(m)(2)(B) and 143(m)(7)(B)(ii)). These changes, effective for taxable years after December 31, 2025, should reduce the tax bite for some homeowners.

Mortgage Credit Certificates (MCCs), which provide a direct federal income tax credit for a portion of mortgage interest paid, also see some changes under Section 7 (amending Section 25 of the tax code). The credit rate for any MCC must now be between 1% and 5%. Issuing authorities will also gain the ability to set a different annual certificate credit rate for each year of the mortgage term. This could offer more tailored support to homebuyers, and these modifications apply to MCCs issued on or after the first day of the second calendar year after the Act's enactment.

Streamlining the Machinery: MCC Timelines and Who Reports What

The bill makes several operational tweaks to Mortgage Credit Certificates. The period an MCC (when its issuance is tied to non-issued bond amounts) can remain in effect is extended by amending Section 25(e)(3)(B) from the 'second' to the 'fourth' year (Sec. 8), applicable to MCCs limited under section 25(d)(2)(A) for calendar years after December 31, 2025. Issuing authorities will also get more time – until the end of the following calendar year – to revoke an election to issue MCCs if they don't use all the bond authority initially earmarked (Sec. 9, amending section 25(c)(2)), effective for elections after December 31, 2025. This helps them manage their bond cap more efficiently.

One change worth noting is the public notice requirement before MCCs are issued. Section 10 amends Section 25(e)(5) to shorten this period from 90 days to 30 days, effective for notices after December 31, 2025. While this could accelerate the process of getting MCC programs up and running, it also means less time for public review and input.

Finally, the responsibility for reporting MCC information to the IRS is shifting. Instead of mortgage lenders, the issuing authorities themselves will now handle this reporting (Sec. 11, amending Section 25(g) and Section 6709(c)). This change takes effect upon the Act's enactment and aims to streamline the process by placing the burden on the entity originating the certificate.