New Rent Relief Act Creates Federal Tax Credit for Renters Paying Over 30% of Income, Starts in 2026

The newly introduced Rent Relief Act of 2025 establishes a significant federal tax credit designed to ease the burden on renters who are shelling out too much for housing. Starting in tax year 2026, if the rent you pay for your main residence exceeds 30% of your total gross income, you become eligible for a refundable tax credit. This credit is calculated based on the amount of rent you paid above that 30% threshold, though the amount of rent that counts toward the calculation is capped at the local “small area fair market rent.”

The 30% Rule and Your Wallet

This new credit is a direct response to the housing affordability crisis, recognizing that spending more than 30% of your income on rent puts a serious squeeze on household budgets. For someone earning $60,000 a year, that 30% threshold is $1,500 per month. If they are paying $1,800 in rent, the $300 difference is the basis for calculating the credit. The goal is to put real money back into the pockets of working families and individuals struggling with high housing costs. Because this is a refundable credit, even if you owe no taxes, you can still receive the money, which is a crucial detail for lower-income folks.

Boosts for High-Cost Cities and Subsidized Housing

The bill acknowledges that the cost of living isn’t uniform across the country. If you live in an area that the Department of Housing and Urban Development (HUD) designates as having high construction, land, or utility costs, the credit calculation gets a major bump: the dollar amounts used to figure out your credit are increased by an extra $25,000. This is a smart move to provide more meaningful relief in places like New York City, San Francisco, or Boston, where rents are astronomically high. However, HUD will need to establish clear, transparent criteria for designating these “high-cost areas.”

There’s also an alternative option for renters in subsidized housing, such as those living in properties supported by federal, state, or local programs. Instead of using the standard 30% calculation, these renters can opt for a credit equal to one-half (50%) of the total rent they paid that year. This 50% calculation is simpler and specifically includes utility payments typically counted in their housing allowance, providing a clear, substantial benefit without the complexity of the income threshold test.

Getting Paid Monthly: The Game Changer

Perhaps the most impactful provision for busy people managing tight budgets is the advance payment mechanism. The law mandates the Secretary of the Treasury to set up a system, within six months of the bill’s passage, to start making monthly advance payments of this credit. If you are eligible and elect to receive these payments when filing your previous year’s taxes, you will get roughly 1/12th of your estimated annual credit every month. Instead of waiting until tax time to get a lump sum, you get cash flow relief now.

For a family relying on every paycheck, getting an estimated $100 to $200 extra per month could be the difference between paying for groceries or catching up on a bill. This monthly payment system starts in July of one year and runs through June of the next. Just remember that whatever you receive monthly will reduce the final credit amount you claim on your tax return. If the IRS overestimates your credit, you might owe some back at the end of the year, so accurate income reporting will be key.