House Committee Advances Tax Bill with Significant Implications for Municipal and Clean Energy Markets

The House Committee on Ways and Means has advanced a tax bill as part of the budget reconciliation legislation, which includes provisions affecting the municipal and clean energy markets. Notably, the proposed legislation maintains the exclusion of interest from gross income for federal income tax purposes for municipal bonds. The bill impacts various sectors, including low-income housing, the endowment tax, small issue manufacturing bonds, and clean energy credits. Significant changes include enhancements to the low-income housing tax credit and the endowment tax.

Key Takeaways:

• The proposed tax bill includes provisions to enhance the low-income housing tax credit, increasing the ceiling on housing tax credits allocable by states by 12.5% for calendar years 2026 through 2029.
• The bill proposes to temporarily lower the tax-exempt bond-financing requirement for projects using the "4%" low-income housing tax credit to 25% of the project's aggregate basis, down from 50%.
• The endowment tax rate for private colleges and universities with endowments over $750,000 per eligible student would be increased to an annual rate ranging from 7% to 21%, based on the institution's student-to-endowment value ratio.
• The proposed legislation includes technical amendments to Section 144 of the Internal Revenue Code to reflect updates made to the capitalization of certain startup costs.
• The bill aims to accelerate the phase-out and termination of various clean energy tax credit programs, including the 48E Investment Tax Credit and 45Y Production Tax Credit.
• The reconciliation bill will be reviewed by the Rules Committee before consideration on the House floor, and approval requires both chambers of Congress.

Statistics:

• The tax-exempt bond-financing requirement for low-income housing projects would be reduced to 25% of the project's aggregate basis.
• The endowment tax rate for private colleges and universities with endowments over $750,000 per eligible student would be increased to an annual rate ranging from 7% to 21%.
• The ceiling on housing tax credits allocable by states would be increased by 12.5% for calendar years 2026 through 2029.
• The 48E Investment Tax Credit and 45Y Production Tax Credit would be phased out and terminated starting in 2029, with full elimination by 2032.
• The clean fuel production tax credit would not apply to projects commencing construction after December 31, 2027.

Sources:

• House Committee on Ways and Means (2025)
• Mondaq Ltd (2025) - http://www.mondaq.com