Low Income Housing Tax Credits
Georgia low income housing credits are a dollar for dollar credit against the Georgia individual trust and corporate income tax, as well as Georgia insurance premium taxes and bank taxes. These credits are awarded to developers of low income housing projects. To acquire the credit from a developer, a purchaser must invest in a partnership or LLC taxable as a partnership that either directly or indirectly owns an interest in an eligible low income housing project. The credit is granted over a ten-year period.
Monarch Private Capital warehouses Georgia low income housing credits, offering them for sale to taxpayers in one-year increments. We pioneered the approach to a single-year credit by allowing taxpayers to invest in one or more funds that warehouse these credits. Most individuals prefer acquiring one-year streams of credits due to the difficulty in forecasting incomes or a potential relocation outside of Georgia.
Characteristics of Georgia Low Income Housing Credits:
- Can be utilized by any entity subject to Georgia income tax.
- Applicable against bank income and franchise taxes and insurance premium tax.
- Credits can be allocated to any partner of a partnership or member of an LLC in any manner.
- No requirement to comply with federal allocation rules contained in IRC Section 704.
- Offer savings between 10% and 23% on state tax liabilities
- Can be carried forward for three years (credit not to exceed the taxpayer’s Georgia income tax liability)
- Can be acquired in multi-year strips of credits anywhere in duration from 2 to 10 years.
- Transferrable to other entities
- Fund investment approach greatly mitigates any recapture exposure
FAQs About Georgia Low Income Housing Tax Credits
- What are tax credits and why do they exist?
Tax Credits are dollar for dollar reductions in a taxpayer’s income tax liability. They are created as an incentive to foster particular types of activities. In this case, the credits are used to encourage the development of low income housing in Georgia.
- When did Georgia enact the low income housing credit?
Georgia initially adopted a low income housing credit in 2001, with the first credits available for sale in 2003. Monarch Private Capital began marketing those credits in 2004. The credit has been instrumental in the development of numerous housing projects in Georgia.
- What should my tax situation be in order to benefit from Georgia low income housing film credits?
You must be a Georgia taxpayer (individual, corporation or trust) with a large enough liability to benefit from the savings. Typically, a $25,000 Georgia income tax liability is the minimum threshold. The credits are beneficial whether the taxpayer is or is not subject to the alternative minimum tax for federal income tax purposes. Although, they are significantly more advantageous if an individual is subject to the alternative minimum tax for federal income tax.
- Are there other taxes for which the Georgia low income housing credit can be used?
Yes. The Georgia low income housing credit may offset the Georgia premium tax which insurance companies owe.
- Are the credits beneficial if I’ve already paid in to Georgia my estimated tax liability?
Yes. The credits will first offset your Georgia income tax liability and any excess withholding will be refunded to the taxpayer.
- When can I buy the credits?
Typically, the credits are not for sale until late spring at the earliest. They must be acquired by the end of the calendar year.
- Can Georgia low income housing credits be carried back on the taxpayer’s prior year’s returns if they have more credits than they can use on their current tax returns?
- What happens if I have more Georgia low income housing credits than I can use on my current return?
Excess Georgia low income housing credits (that is those in excess of your current year’s liability) may be carried forward for up to three years.
- How do I acquire Georgia low income housing credits?
They are acquired by investing in an entity taxable as a partnership which either directly or indirectly has invested in one or more low income housing projects located in Georgia. You receive the credits as an allocation on the partnership K-1.
- How do I find a Georgia low income housing partnership?
Monarch Private Capital has several diversified Georgia low income housing funds for investors to acquire Georgia low income housing projects.
- How do I claim the Georgia low income housing credits on my Georgia income tax return?
They are reported on page 5 of Georgia Form 500 on the Credits Section. You simply attach your K-1 to the tax return.
- What is the typical pricing range of Georgia low incomes housing credits?
Buyers of these credits can expect to acquire them for 79-84 cents per credit. The later it gets in the year, the more expensive. This is due to their scarcity and time value of money concepts.
- If I buy Georgia low income housing credits does that increase my risk of audit?
No. The Georgia Department of Revenue has indicated that the presence or absence of Georgia low income housing credits does not alter the probability of audit.
- This seems too good to be true, is it ethical or legal?
Not only is it ethical and legal, but this is something the state of Georgia wants taxpayers to do. Otherwise, the Georgia low income housing credit program would not work and Georgia would be unable to attract low income housing projects in the state.
- Are the Georgia low income housing credits subject to recapture?
Partially. Only one-third of the credits are subject to recapture if the project fails to remain qualified as a low income housing project. However, this seldom happens. Ernst & Young performed a study which indicated that less than one-tenth of 1% of all low income housing projects ever has a recapture event.
- How do I minimize the risk of recapture?
By investing in well diversified funds, such as those offered by Monarch Private Capital. That way even if there is a recapture event with a particular project, the impact is minimal.