Temporary Targeted Qualified Mortgage Bond Volume Cap Expansion Act of 2025

This Act amends Section 143 of the Internal Revenue Code of 1986 to allow each state, for a five-year period, to issue qualified mortgage bonds in an amount up to 25% above the current annual state volume cap. The additional volume may only be used to finance owner-occupied residences for first-time homebuyers whose household income does not exceed 120% of the area median income (or 140% for addresses in high-cost housing areas). Each state must allocate at least 50% of the additional bond volume to residences located in qualified housing shortage areas, defined as areas where the Secretary of Housing and Urban Development certifies that the rental vacancy rate is below 5% and home prices grew faster than the national average over the preceding three years. States must submit an allocation plan to the Secretary of the Treasury before issuing any additional bonds, and the Treasury Secretary must establish a report on the affordability outcomes achieved with the added volume. To offset the estimated $2.1 billion reduction in federal tax revenue over five years, this Act also extends for two years the limit on excess business losses under Internal Revenue Code Section 461(l), which otherwise expires after 2025, preserving about $2.1 billion in federal revenue. The authority granted under this Act sunset five years after enactment, and the Secretary of the Treasury, in consultation with the Secretary of Housing and Urban Development, must submit a cost-benefit analysis to Congress within six months of the sunset date. Enforcement will be carried out by the IRS under existing private activity bond rules; any bond issued above the authorized allocation will be reclassified as taxable and subject to a 5% penalty on the excess principal.