I have been reading about sources of capital for a project, I understand debt, private equity, etc. But I am a little confused about tax credits. I read that "tax credits are federal govt granted tax breaks that developers can apply for and be allotted for developing low income income housing or renovating and preserving historical structures. The developer then sells these tax credits to corporations or middlemen for cash to fund projects". Can someone please dumb this down a little bit for me? I didnt even know that there is a secondary market for tax credits.
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What kind of project, essay?
I was just reading about sources of capital for RE on the REFM website. Just wanted to learn out of curiosity.
Which part are you confused on?
"tax credits are federal govt granted tax breaks that developers can apply for and be allotted for developing low income income housing or renovating and preserving historical structures. The developer then sells these tax credits to corporations or middlemen for cash to fund projects"
Not entirely sure what else to say about this. What part confuses you?
I think it would provide more clarity for him if someone provided an example of the process.
okay so I did some more research and this is what I understand now
When a developer rehabs a historic tax credit eligible project, for whatever the eligible expenditures are, the developer gets 20 percent of it as tax credits, it reduces the income tax liabilities. If the developer needs cash at a crucial stage of the project, the developer can bring in an investor into the deal, sell the tax credits to the investor. The investor typically buys the credits for about 50-90 cents on the dollar. The investor has to be on title for 5 years after the project is complete, otherwise the credits can be recaptured. Is this a good summary? I know that there are details like only certain building types can be used for the credits. But, if anybody actually involved in a deal with these credits in real life wants to chime in about anything interesting in them, would love to hear!
side note- apparently, Exxon Mobil Corporation is the single biggest user/investor involved with historic tax credits.
The LIHTC market is much larger than the historic tax credits you are referencing. Novogradac has some good intro info, but you gotta pay for some of it. However, Wiki can provide the basics
https://en.wikipedia.org/wiki/Low-Income_Housing_Tax_Credit
Tax Credits - Development (Originally Posted: 11/03/2016)
How do you go about checking tax credits available for developing properties for a certain area to see if your project is eligible? Interested for a city in South Florida
Yeah, because they have an enormous tax liability year over year. Yields won't be realized as a tax credit investor unless you have taxes to pay, both from the purchase of the credits, and to a lesser extent the operating losses from the property which are then realized from the investor (LP) who owns 99.9% of the partnership.
Contact the State of Florida Housing Agency. Or go to (https://www.novoco.com/resource-centers/affordable-housing-tax-credits).
If you are going for new markets tax credits, keep in mind there are 'distressed' and 'severely distressed' census blocks - both of which are technically eligible. However, NMTC are so competitive that if your property is not in a 'severely distressed' block you are most likely out of luck unless you have a substantial community benefit behind your project.
Link: https://www.novoco.com/resource-centers/new-markets-tax-credits/data-to…
What kind of tax credits? New market, low income, historic, solar, etc..
Can you give the general parameters of the properties: new/old/historic, low income/market rate, brownfield, New Market, and so on and so on....?
In general, each state government has an economic development web page, which is where I would start.
If you are looking at them from the developer's perspective, you get awarded a credit for doing something the market wouldn't typically allow. You sell those credits and roll them into the deal as equity. They are a way for the government to incentivize affordable housing and historic preservation.
If you are looking at it from the investor's side they get credits and losses that reduce their tax liability and CRA benefits (if they are a bank).
Energy development/developers and tax credits (Originally Posted: 12/16/2015)
Anyone work on any deals involving energy development, either of wind or solar projects? Looks like the tax credits used to finance these projects are going to be extended for several years, which has historically been what keeps mass-development from happening - all the uncertainty in keeping the tax credits as a funding source, etc..
http://www.bloomberg.com/news/articles/2015-12-15/solar-wind-shares-jum…
People in my group mentioned the news today and how we might start looking into some energy deals, but it got me thinking about personal opportunities in my brokerage account. Do you see news like this impacting value of energy developers'/part manufactures' stocks at all and for the long term (2-4 years), or would the low cost of oil/gas offset demand for more renewable energy?
Any insight into the industry and how the values of these companies will be impacted would be awesome..
the investment tax credit is more important and As far as I know it is jumping to 10 % from 30% in 2017... This Article doesn't really say anything about the specifics of ITC vs PTC and what a potential deal might look like.
Also Oil prices affect mainly tranpostation, whereas renewable energy is mostly electrc generation. Therefore these commodities do not directly compete for market share. However, gas prices are beig seen as the intermediary between coa/nuke and renewable and are expected to take and remain the majority of electricity generation for the next 2- 4 years. My prediction is much, much longer.
The real news is fed rates and oil exports. Now theres a story
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