State Incentives Crucial to Success of Community Development

Published by Michael Novogradac

State (and local) tax incentives play an often underappreciated role in the success of federal tax incentives.

The low-income housing tax credit (LIHTC), new markets tax credit (NMTC), historic tax credit (HTC), renewable energy investment tax credit (ITC) and production tax credit (PTC), and opportunity zones (OZ) incentive are all part of the federal tax code, but state incentives to complement them make a significant difference.

This issue of the Novogradac Journal of Tax Credits highlights various state-level tax incentives and how they interact with the federal versions. Two things are obvious: State tax incentives are important and certain types are more successful.

How state tax incentives are structured varies widely. Many states have incentives that largely mimic the federal version (especially in the cases of the LIHTC and HTC), while others are more targeted, such as to specific types of businesses, geographic areas, or demographic groups. Some states embrace tax-based incentives for community development, others are averse to using the tax code to incentivize such activities.

State tax incentives are important–and it’s worth looking at the big picture of what states are doing, what works and how different states are adapting. Most importantly, it’s worth examining what works best when it comes to state-level incentives for affordable housing, community development, historic preservation and renewable energy.

Read more about why state tax incentives matter.