CaliforniaAB 4802025-2026 Regular SessionHouseWALLET

Personal Income Tax Law: Corporation Tax Law: insurance tax law: low-income housing tax credit:

Sponsored By: Sharon Quirk-Silva (Democratic)

Signed by Governor

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Bill Overview

Analyzed Economic Effects

18 provisions identified: 5 benefits, 0 costs, 13 mixed.

Carry forward unused state credits

If your state housing credit is bigger than your state tax for the year, you carry the extra forward. The carried amount reduces your state tax in later years until it is used up.

Corporations can assign credits to affiliates

A corporation can assign any part of a credit to one or more affiliated corporations it owns 100%. Affiliation uses voting common stock and 100% ownership. The election is irrevocable for that tax year. Assignments can change in later years if both companies show the change on their returns.

Cap on investor cash distributions

Cash distributions to owners are capped at 8% of the lesser of owner equity or 20% of adjusted basis. Unused distribution amounts from the first five years may be paid any time in the first 15 years. Any extra cash beyond allowed distributions must reduce rents on restricted units or add more restricted units.

Claim credit before final certification

Beginning with tax years starting January 1, 2023, you can claim the state credit in the year the building is placed in service and the federal credit period starts. The housing sponsor must first file a taxpayer certification and give you a copy. You can claim only your pro rata share of the lesser of the preliminary reservation amount or the taxpayer certification. If CTCAC later issues a different certification, you must amend prior returns. The tax agency may ask for the certification and may disallow or suspend the credit if you do not provide it.

Partnership credit splits and timing

For projects with a preliminary reservation on or after January 1, 2009, state credits go to partners as the partnership agreement says, even if federal allocations differ. If an allocation lacks substantial economic effect and you sell your interest before the federal credit period ends, you cannot take the loss then. That loss or deduction is deferred until the first tax year after the federal credit period ends.

Sell credits for cash, with safeguards

If your project got a preliminary reservation on or after January 1, 2016, you may sell all or part of the state credit before final allocation. The buyer must pay at least 80% of the credit’s value; you can revoke the election until CTCAC sets the final amount. If you already claimed a credit on a return, you cannot sell that credit later. You must report any sale to CTCAC within 10 days, listing the buyer’s taxpayer ID, the credit amount sold, and the price; CTCAC sends a yearly list to the tax agency. If you sell a credit, you keep the legal obligations tied to it; buyers can use the credit against their state tax.

Much bigger pool of housing credits

The state keeps a base cap of $70 million for 2001, adjusted each year by inflation. For 2020, the law adds $500 million more in credits. Starting in 2021, up to $500 million more can be available each year, but only if the Budget Act names an amount and the two housing committees adopt rules to boost production and cut costs. Up to $200 million of that extra pool can go to California’s Mixed‑Income Program. Some sponsors who already got certain nonfederally subsidized awards cannot use this extra pool.

Credit rates and four-year schedule

The state credit runs over four years, not ten. For new, non‑federally subsidized buildings, years 1–3 use the federal Treasury rate; year 4 equals 30% minus the first three years’ total. For new federally subsidized buildings, the rate is 9% in years 1–3 and 3% in year 4. For certain new federally subsidized or “at‑risk” existing buildings, years 1–3 use the Treasury subsidized rate; year 4 equals 13% minus the first three years’ total. Deeply targeted rehabs meeting strict rules get 30% in years 1–3 and 5% in year 4. Projects in difficult development areas or qualified census tracts can still receive state allocations, and CTCAC can swap part of a federal increase for a state credit (up to 30% of eligible basis). You cannot use the federal credit‑acceleration election for this state credit.

Farmworker and state housing set-asides

Up to $200,000,000 from the increased pool may go to projects financed by the state housing agency’s Mixed‑Income Program. For 2020 increased credits, CTCAC favors projects that can start construction within 180 days. From 2021 on, a scoring system favors more units, lower costs, very‑low income units, and sites near jobs and transit. From 2024 through 2034, each year the lesser of 5% of the increased amount or $25,000,000 is set aside for farmworker housing, with round‑to‑round rollovers and year‑end returns to the pool. After October 31, any unused rural set‑aside can be reallocated, but not to non‑rural projects if eligible rural applications are pending that day. Starting with 2020 availability, eligibility also reaches federally subsidized new buildings and recent hotel or nonresidential conversions to housing.

State housing credit rules and eligibility

California provides a low‑income housing tax credit that follows federal low‑income housing credit rules unless this law says otherwise. The California Tax Credit Allocation Committee (CTCAC) allocates credits based on project need. Projects must be in California and have a federal credit allocation or qualify under the tax‑exempt bond rule, with a narrow farmworker exception. Your federal credit elections also apply to the state credit. Certifications and reports that went to the federal “secretary” now go to the Franchise Tax Board. The law defines who counts as the taxpayer and the housing sponsor for C corporations, partnerships, and S corporations.

Dedicated credits for farmworker housing

From 2024 through 2034, the law sets aside the smaller of 5% of the extra pool or $25 million each year for farmworker housing. Any unused set‑aside rolls to later rounds that year, and leftover credits return to the main pool after the final round. The law also reserves $500,000 each year for farmworker housing and sends any old returned or unallocated credits from listed past programs to farmworker projects until they are used up. For qualified farmworker buildings that are federally subsidized, the state credit rate is 20% in years 1–3 and 15% in year 4.

How projects are picked and scored

At application, sponsors must show community need, site control, zoning approval, an experienced team, and enforceable financing for at least 50% of costs. Development fees must stay within committee limits, and the credit ask must be needed for feasibility. The committee adopts a qualified allocation plan and uses federal selection criteria. Projects serving the lowest‑income tenants for the longest time get preference. Scoring also rewards large‑family units, very low‑income SROs, at‑risk preservation, strong public support or high owner equity, tenant amenities, and—starting in 2021—efficient use of subsidy, more and larger units, access to services, and very low/extremely low‑income homes.

Stronger long-term affordability and enforcement

Projects that get the state credit must meet affordability and other rules for 30 straight taxable years. The law replaces federal recapture with a recorded regulatory agreement that lasts at least that long. The agreement lists enforcing agencies, lets income‑eligible tenants enforce it, assigns rents as security, and sets lender subordination rules. It also spells out remedies for default, like rent collection, receivership, or specific performance.

Lower application fees for credits

CTCAC cannot charge a second application fee for the state credit if you paid the federal application fee in the same calendar year. CTCAC may charge a fee only when the state application is filed in a later calendar year than the federal one.

Credits claimed over four years now

The state low‑income housing credit is now claimed over four taxable years instead of ten. This gets credit dollars to projects faster. Faster credits can help deals close and break ground sooner.

Allocation rounds and fast-start rules

The committee runs two or more allocation rounds each year, with set deadlines and limits per round. If new laws block two rounds, it can cut the number and adjust timing. When the bond committee runs a competition, some credits can go to nonfederally subsidized buildings and the rest must go to new federally subsidized projects that can start soon. If there is no bond competition, awarded projects must still start in a reasonable time. For the 2020 extra credits, projects must be able to begin construction within 180 days of award.

Faster rulemaking for credit program

The credit committee can issue rules and procedures to run the program. These actions are not subject to the usual state rulemaking chapter. This lets the committee act faster on program rules and allocations.

Limits on owner cash distributions

Owners of qualified low‑income projects can take cash distributions only up to set limits. You can take up to 8% of the lesser of owner equity paid or 20% of adjusted basis, or the cashflow from market‑rate units. Amounts not paid out in the first 5 years can be saved and paid within the first 15 years. Any extra cash must lower rents on restricted units or add more restricted units.

Sponsors & Cosponsors

Sponsor

Sharon Quirk-Silva
Democratic • House

Cosponsors

There are no cosponsors for this bill.

Roll Call Votes

All Roll Calls

Yes: 176 • No: 0

Senate vote • 9/4/2025

Item 435 — Senate SFLOOR

Yes: 39 • No: 0

legislature vote • 8/29/2025

Vote in CS61

Yes: 7 • No: 0

legislature vote • 8/25/2025

Vote in CS61

Yes: 6 • No: 0

legislature vote • 7/9/2025

Vote in CS83

Yes: 5 • No: 0

legislature vote • 6/17/2025

Vote in CS75

Yes: 9 • No: 0

House vote • 6/2/2025

Item 96 — Assembly AFLOOR

Yes: 79 • No: 0

legislature vote • 5/23/2025

Vote in CX25

Yes: 14 • No: 0

legislature vote • 4/28/2025

Vote in CX19