Federal Affordable Housing Tax Credit
The federal credit can be monetized by developers, often through syndicators, and utilized by third investors through the use of partnerships or limited liability companies.
Several states have programs of a similar nature to the federal program. These programs vary by state and apply to different state taxes levied.
The credits are spread over a 10-year time frame.
Projects are awarded tax credits by state housing agencies through a competitive process. The LIHTC program provides quality affordable housing to low-income residents, both families and seniors. These rent-restricted units tend to provide attractive and affordable housing alternatives for the elderly.
- Requires purchase of a multiple-year strip.
- Benefits include tax losses due to depreciation and typically minimal cash flow distribution.
- Guidance exists, eliminating GAAP concerns.
- Extremely low-risk profile given vigorous underwriting and proactive asset management throughout the 15-year compliance period.
- Projects are often low leverage due to the substantial tax equity investment.
- Investments may be used to satisfy CRA requirements.
- Both proprietary or multi-investor funds available.