Federal Tax Credits
Congress has enacted tax credit programs to encourage investment in projects that create jobs and revitalize communities where private investment has deemed inadequate. These federal credit programs include investments in the rehabilitation of historic buildings, the generation of renewable energy, and the development of affordable housing. These investments not only offer federal tax credits, but they also provide substantial social and environmental benefits that can help you achieve your ESG or sustainability initiatives.
When you invest in our federal ESG funds, you reduce your tax liability while positively impacting the communities in which you invest. Your investment in solar tax credits can help improve the environment by creating clean power and avoiding CO2 emissions. Investing in historic tax credits can revitalize a lifelong part of the community and create new jobs. Meanwhile, your investment in inclusive affordable housing can lead to the development of quality homes, safer neighborhoods, and improved local economies.
The team at Monarch Private Capital is well-versed in our federal tax credit offerings. We can help find the most appropriate tax credit offering for you.
Aside from providing a high ROI, tax credits can help you:
- Reduce your federal income tax liability
- Enhance your GAAP earnings
- Achieve your ESG and sustainability initiatives
Since 1977, the federal Historic Tax Credit (HTC) has played an imperative role in revitalizing communities and sparking economic growth across the country. The HTC is the most significant investment that the federal government makes toward the preservation of historic buildings – and it returns more to the Treasury than it costs, $1.20 in tax revenue for every dollar invested.
- The HTC is a form of additional project capital.
- The Federal HTC is equal to 20% of qualified rehabilitation expenditures.
- The Federal HTC is currently available as either a one-year credit or a five-year credit.
- The Federal HTC can generally offset up to 75% of current year tax liability. Excess credits can be carried back one year and carried forward for 20 years.
- Tax savings result in a lower effective tax rate and permanent GAAP earnings.
- Recapture, or partial recapture, is triggered if a project ceases operations, or if there is a change of ownership, within a five-year window after being placed-in-service. Insurance can be acquired to cover recapture risk.
- Low Risk: US Trust for Historic Preservation’s latest “Survey on Historic Credit Recapture; 2002-2012” quantified credit recapture risk at 0.73% of tax credits claimed.
Created in 1986 and made permanent in 1993, the federal Low Income Housing Tax Credit (LIHTC) program remains the largest source of new affordable housing in the United States, substantially increasing the affordable housing stock for more than 30 years. Since implemented, the LIHTC has developed more homes than any other construction and preservation program operating today.
- Involves a multiple-year investment in affordable housing.
- Guidance exists, eliminating GAAP concerns.
- Credits flow tax losses due to depreciation and usually no cash flow distributions.
- Typically, safe underlying economics.
- Returns are single digits due to CRA (Community Reinvestment Act) competition.
- Federal affordable housing tax credits are typically pooled and syndicated on a proprietary basis or may be syndicated to multiple corporate investors in a given fund.
- Investments may be used to satisfy CRA requirements.
- Fifteen-year recapture period — though recapture seldom happens.
- Extremely low–risk profile given vigorous underwriting and proactive asset management throughout the 15-year compliance period.
- Debt levels are often less than 50% of the capital of the project due to the substantial tax equity investments.