Tax Credit Investment Programs
The legislative incentive program to encourage the preservation of “historical buildings”. Congress instituted a two-tier Tax Credit incentive under the 1986 Tax Reform Act. A 20% credit is available for the rehabilitation of historical buildings and a 10% credit is available for non-historic buildings, which were first placed in service before 1936. Benefits are derived from tax credits in the year the property is placed in service, cash flow over 6 years and repurchase options in year six.
This investment tax credit is equal to 30% of the cost of development, with no maximum credit limit. Eligible solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. The ITC is generated at the time the qualifying facility is placed in service. Benefits are derived from the ITC, accelerated depreciation, and cash flow over a 6-8 year period.
Under present law, an income tax credit of 2.1 cents/kilowatt-hour is allowed for the production of electricity from utility-scale wind turbines and geothermal plants. This incentive, the renewable energy Production Tax Credit (PTC), was created under the Energy Policy Act of 1992 (at the value of 1.5 cents/kilowatt-hour, which has since been adjusted annually for inflation).
Under this program, created in the 1986 Tax Reform Act, the U.S. Treasury Department allocates tax credits to each state based on that states population. These credits are then awarded to developers who, together with an equity partner, develop and maintain apartments as affordable units. Benefits are derived primarily from the tax credits over a 10 year period.
QSCBs are U.S. debt instruments used to help schools borrow at nominal rates for the rehabilitation, repair and equipping of their facilities, as well as the purchase of land upon which a public school will be built. A QSCB holder receives a Federal tax credit in lieu of an interest payment. The tax credits may be stripped from QSCB bonds and sold separately. QSCBs were created by Section 1521 of the American Recovery and Reinvestment Act of 2009. Internal Revenue Code Section 54F also addresses QSCBs.
The Work Opportunity Tax Credit (WOTC) is a federal tax credit providing incentives to employers for hiring groups facing high rates of unemployment, such as veterans, youths and others. WOTC helps these targeted groups obtain employment so they are able to gain the skills and experience necessary to obtain better future job opportunities. The WOTC is based on the number of hours an employee works and benefits the employer directly. Foss and Company has been successful in developing a structure whereby passive third-party investors may take the tax credit benefit.
Approximately 43 states provide a variety of special incentive programs that utilize state tax credits. These include Brownfield credits, Film Production credits, Renewable energy credits, Historic Preservation credits and others. The amount of credit, the term of credit and the cost of the credit differs from state to state. These credits can be either in the form of a certificate, which can be purchased as an asset, or in a more traditional pass through entity. The tax credits can generally be used against insurance company premium tax, bank tax and income tax.