The LIHTC Carryback Bill Targets Investor Demand, Where Credit Pricing Is Under Pressure

A bipartisan bill introduced in the Senate this month goes after the demand side of the LIHTC market, and it deserves more attention than it has gotten. Senators Ruben Gallego (D-AZ) and Mike Rounds (R-SD) introduced the Affordable Housing Credit Carryback Act (S. 5366) on August 7, referred to the Finance Committee the same day. It would extend the carryback period for the Low-Income Housing Tax Credit from one year to five. A House companion, introduced in May by Reps. Mike Carey (R-OH) and Jimmy Panetta (D-CA), has been pending in Ways and Means since the spring.

The mechanics matter more than the headline. An investor who cannot fully absorb a year's Housing Credit allocation against that year's tax liability has almost nowhere to put the excess today, since the current one-year carryback window is short relative to most other federal tax credits. Five years brings LIHTC in line with that broader treatment, letting an investor apply unused credit against taxes already paid in prior years rather than losing value or waiting on a thin carryforward market. Rounds framed it plainly: "Expanding the LIHTC carryback period from one to five years will provide investors necessary flexibility to improve our nation's affordable housing supply." Gallego's rationale runs the same direction, tying tax flexibility for investors directly to more housing coming online faster.

Timing is the real story here. The One Big Beautiful Bill Act permanently raised the annual 9 percent credit allocation by 12 percent and cut the private-activity-bond financing threshold for 4 percent deals from 50 percent to 25 percent, both effective this year. That expanded the pipeline of eligible deals substantially, and syndicators have reported real downward pressure on tax credit pricing since, supply is arriving faster than investor demand in a number of markets. A five-year carryback adds no new subsidy. It widens the pool of investors who can fully monetize credit they already want, which is the right lever if softening pricing is a demand problem rather than a program design problem.

The Affordable Housing Tax Credit Coalition has already backed the bill, and bipartisan sponsorship in both chambers gives it a real path relative to most standalone tax bills this Congress. My own view is that this is the more consequential of the LIHTC bills currently moving on the Hill, more so than proposals adding new set-asides, because it targets the mechanism actually constraining deal pricing today instead of adding complexity on top of a market still absorbing this year's supply-side changes. Worth watching whether it gets folded into a larger tax vehicle before year-end or has to clear Finance on its own.

Sources

• Congress.gov, S. 5366
• Rep. Mike Carey, House companion announcement
• Cactus Politics