OBBB, oh my — On July 4, President Trump signed the One Big Beautiful Bill (OBBB) Act into law, the president’s signature tax and spending legislation. Yet OBBB’s passage was hardly a sure thing. The Senate narrowly passed OBBB on July 1, with Vice President Vance breaking a tie. Two days later, the House voted through a reconciliation bill.
OBBB includes income-tax reductions, spending hikes on defense and border security, and cuts to safety-net programs. Because OBBB underwent several last-minute iterations and revisions, we summarize some of its key provisions below—as well as possible downstream implications for the housing finance sector.
OBBB features a permanent extension of the income tax rates established by the Tax Cuts and Jobs Act (TCJA), passed during President Trump’s first term, which were previously set to expire on December 31, 2025. The TCJA reduced five of seven individual income tax rates—from, respectively, 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. (The TCJA also permanently lowered the corporate tax rate—from a graduated system with a top rate of 35% to a flat rate system of 21%.)
OBBB also includes many temporary tax provisions, such as exempting tips and overtime pay from federal income tax for the tax years 2025 through 2028. The maximum amount of tips deductible per year is $25,000, while the maximum amount of overtime pay deductible per year is $12,500. Eligibility begins to phase out at an income of $150,000 a year, or $300,000 if filing jointly. Some 97 million U.S. workers receive overtime pay and another four million workers earn tips, according to CNBC.
One heavily publicized provision of OBBB is no tax on social security. Said declaration, though, is also temporary and somewhat misleading. Rather than no tax rate on social security income, the bill raises the standard deduction for people aged 65 and older to $6,000 for tax years 2025 through 2028. A July 3 email sent by the Social Security Administration states: “[OBBB] ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits.” (According to the White House Council of Economic Advisers, about 67% of Social Security recipients already do not pay taxes on Social Security benefits because they don’t make enough income for the tax to apply).
Another temporary provision is a deduction for interest paid on auto loans for new vehicles assembled in the U.S., up to $10,000 per year. Like the taxes on tips and overtime, this provision phases out for higher-income taxpayers and only applies for tax years 2025 through 2028.
OBBB raises the state and local tax (SALT) cap imposed by the TCJA from $10,000 to $40,000 for taxpayers earning $500,000 or less. However, the increased cap expires after tax year 2029. OBBB also increases the standard deduction for all taxpayers, as well as raises the child tax credit and HSA contribution limits.
OBBB offers tax incentives for businesses to expand and modernize their operations, too. Permanent deductions are provided for domestic R&D expenditures in the year they are incurred, while 100% first-year depreciation is allowed for qualified property that is acquired and placed in service after January 19,
2025. Additionally, 100% expensing is permitted for new, nonresidential real property used in “qualified production activities” if construction starts between January 19, 2025, and January 1, 2029, and the project is placed in service before January 1, 2031.
OBBB makes the Opportunity Zones (OZ) program permanent, while also refining its rules to target geographic areas in most need. The act also expands low-income housing tax credits (LIHTCs) and permanently extends the new markets tax credit (NMTC).
The congressional Joint Committee on Taxation estimates that OBBB will reduce federal tax revenues by more than $4.5 trillion over the next decade. But since many of the tax savings are temporary and, therefore, not included in the full ten-year budget window—the final revenue cost of the bill could be significantly higher. Meanwhile, future Congresses will feel significant pressure to extend the temporary provisions, as just happened for the TCJA.
OBBB also represents a significant shift in federal spending policy. The bill increases military spending by more than $150 billion. It also transforms American immigration policy by allocating more than $150 billion for the administration’s border and immigration crackdown. The bill effectively triples the budgets for border security and interior immigration enforcement, including expanded detention centers and deportation operations.
For example, OBBB allocates more than $70 billion in funding over four years for the U.S. Customs and Border Protection agency, some of which is earmarked to fund the construction of approximately 2,350 miles of walls and barriers along the border. In addition, the bill allocates more than $75 billion to U.S. Immigration and Customs Enforcement to expand interior enforcement operations including the hiring of at least 10,000 new ICE agents, more than doubling the agency’s personnel.
At the same time, OBBB cuts Medicaid and Affordable Care Act subsidies (estimated at $1.2 trillion over ten years), removes about $140 billion from nutritional assistance programs, cuts $330 billion from student-loan programs and education, and saves another $540 billion by repealing tax credits on electric vehicles and business investments in clean-energy systems and green manufacturing.
Against a current law baseline, the Congressional Budget Office (CBO) estimated that the bill would add approximately $3.9 trillion to the national debt over a decade, including $700 billion of additional interest.
Downstream implications for multifamily housing — Below, we highlight four topics that developers, owners, management companies, and lenders should keep in mind as OBBB takes effect: higher interest costs, short-term stimulus, lower population growth, and tax credits.
The administration and several GOP-aligned economists argue that OBBB will materially stimulate the nation’s rate of economic growth, thereby increasing tax revenues—and shrinking deficits and debt—by more than the CBO estimated. This is a common position of all recent administrations and political parties responsible for such budgets. However, independent economists generally agree that OBBB will accelerate the growth of U.S. deficits and debt, while raising borrowing costs for everyone.
For example, Mark Zandi of Moody’s Analytics wrote: “The GDP effects are on the margin. It adds a little to GDP growth in 2026 but over the longer run… it’s a wash.” Zandi estimates that OBBB will lift U.S. economic growth to 1.3% next year, up from his prior 0.9% projection. Over the next 10 years, he projects that the economy will grow by 1.3% to 2.3%. For reference, before the passage of OBBB, the Federal Reserve estimated that U.S. GDP growth would be 1.6% in 2026 and 1.7% to 2.0% over the longer run.
As Zandi acknowledged, the tax cuts in OBBB should have a short-term stimulative effect on the economy. Many Americans will have more money in their pockets due to tax forgiveness on tips and overtime, deductible car loan interest, higher SALT deductions, higher standard deductions, and child tax credits. As a result, consumer spending—which accounts for 70% of U.S. GDP—will likely increase to some degree in 2026. Higher after-tax income may also make it easier to pass on higher rents; in saturated markets, higher after-tax income may at least keep more renters from moving.
Yet, as Carl Weinberg, chief economist of High Frequency Economics, notes, by increasing consumer demand when unemployment is already historically low, OBBB is likely to spark more inflation. This risk, in addition to higher tariffs, may encourage the Fed to remain cautious about cutting interest rates in the near future.
As U.S. population growth has slowed in recent years, mainly due to a declining birthrate and overall aging population, the main group responsible for maintaining a positive growth rate has been immigrants. The Census Bureau, for instance, estimated that the nation’s population increased by 0.98% from July 1, 2023, to July 1, 2024—of which immigration accounted for 84% of the increase. On the other hand, the Census Bureau also projects that America’s population growth rate will decline to 0.5% in 2025, mainly due to less immigration. We’re neither criticizing nor supporting the administration’s border security and deportation policies. But we are pointing out that the combined effect of much lower immigration and aggressive deportation efforts will, over time, decrease demand for housing units, especially in areas where foreign born populations aggregate. Lower levels of immigration and higher rates of deportation may also increase some property related operating costs—such as for cleaning, maintenance, turf/snow/landscaping, and food service and healthcare in some seniors’ projects.
It’s also true that lower population growth at a time when unemployment is historically low will likely put downward pressure on the unemployment rate and upward pressure on wages. This possibility may make the Fed even more cautious about cutting interest rates.
Finally, some good news for our industry. OBBB will make the NMTC permanent at $5 billion in annual allocation authority, as well as permanently extend the OZ incentive. In the process, eligibility requirements were tightened, and reporting obligations increased on OZ investments to improve oversight and ensure that resources are directed to the most economically distressed areas. The bill will also make permanent a 12% increase in annual 9% LIHTC allocations, as well as reduce from 50% to 25% the “financed-by” test for affordable rental housing that is financed by private activity bonds.
In short, as a Bloomberg article (“Trump Tax Law Is Surprise Boon for Affordable Housing Creation”) noted, OBBB makes significant changes to LIHTC, NMTC, and OZ—three tax-based, community development programs that housing groups and private sector investors broadly favor. The revamp is expected to spur construction of new apartment buildings and the renovation of older ones. This flurry of activity could produce up to 1.2 million more affordable units over the next 10 years than if the programs had remained the same, according to housing analysts. “We think of it as the single largest increase in affordable rental housing resources in at least 25 years,” said Peter Lawrence, the chief public policy officer at Novogradac, a consulting firm with a focus on real estate.
However, OBBB also accelerates the expiration of multiple clean energy tax credits from 2032 (their original end date) to either 2025 or 2026. Per accounting firm Wifli, affected clean energy credits that multifamily property owners, construction firms, and designers should be aware of include:
- Energy-Efficient Home Improvement Credit: Terminates for property placed in service after 12/31/2025.
- Residential Clean Energy Credit: Terminates for expenditures made after 12/31/2025.
- Commercial Clean Vehicle Credit: Terminates for property placed in service after 9/30/2025.
- Energy Efficient Home Credit: Terminates for homes acquired after 6/30/2026.
- Energy Efficient Commercial Buildings Deduction: Terminates for property beginning construction after 6/30/2026.
Though OBBB will clearly have a far-reaching impact on the U.S. economy, consumers, businesses, and property owners, the precise impact will not be fully understood for at least several years. We hope that this Talking Points provides a useful starting point to begin thinking about the bill’s impact on you and your business.
FROM THE DESK
Agency CMBS — Fannie Mae DUS spreads widened by one to two basis points (bps) throughout last week, as volumes picked up after the shortened July 4 trading week. New-issue Fannie Mae TBA volume came in at roughly $800 million, with the majority as five-year and 10-year maturities. The first 30-year deal in nearly six months came to market with significant interest and traded very well. Full-term IO and discount bonds continue to trade with tighter spreads compared to other structures. Ginnie Mae TBAs also met softer demand last week and spreads widened by two to three bps.
Municipals — AAA tax-exempt yields were lower in the front end of the curve and relatively flat thereafter, week over week. After a quiet holiday week, the market returned to its normal heavy calendar last week: Over $12 billion of primary deals came to market. So far, reinvestment needs have helped absorb the continued elevated issuance. But tax-exempt rates have lagged Treasuries due to historically high volumes. Municipal bond funds had an 11th straight week of inflows, with $432 million arriving (year to date inflows of $7.38 billion). The high yield fund subsector had inflows of $137 million.
The information contained herein, including any expression of opinion, has been obtained from, or is based upon, resources believed to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell securities, if any referred to herein. Lument Securities, LLC may from time to time have a position in one or more of any securities mentioned herein. Lument Securities, LLC or one of its affiliates may from time to time perform investment banking or other business for any company mentioned.
