Federal Tax Credits
Historic Rehabilitation • New Markets • Renewable Energy • Low Income Housing
Historic Rehabilitation Tax Credit
The HTC not only preserves our architectural heritage but also drives economic growth. The program has created over 3.2 million good-paying local jobs and leveraged $235 billion in private investment. Furthermore, it has generated over $32.4 billion in federal tax revenue. The cumulative impact is profound—over $131.71 billion in private investment mobilized across all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
Eligible properties under this program receive a tax credit equal to 20% of the cost of rehabilitation. This credit applies to certified historic structures, ensuring that the character and charm of historically significant buildings are maintained while adapting them for modern use. Non-historic, non-contributing buildings constructed before 1936 are also eligible for a 10% credit, encouraging broader preservation efforts within historic districts.
The success of the Federal HTC has inspired nearly half of all states to implement similar tax credit programs, further reinforcing the commitment to preserving our cultural heritage while invigorating local economies.
Renewable Energy Tax Credits
Under the 2022 Inflation Reduction Act, the federal energy Investment Tax Credit (ITC), authorized under 26 USC 48 (section 48), has been significantly expanded and extended. This program is instrumental in promoting adopting renewable energy technologies such as solar, wind, and geothermal systems. The ITC now offers an increased tax credit of up to 30% for solar energy systems and other eligible technologies, extending the credit availability beyond the previous deadlines. Significant changes include:
- Extension: The ITC for solar and other renewable energy projects has been extended, now providing 30% credit for projects that begin construction before January 1, 2025. After this date, the credit begins to phase down unless extended by future legislation.
- Transferability: Starting in 2023, tax credits can be transferred for the first time, allowing project developers and investors more flexibility in utilizing them.
- Bonus Credits: Additional bonuses are available for projects that meet specific domestic content requirements and are located in energy communities, potentially increasing the ITC to 50% or more of the eligible costs.
- MACRS: Eligible projects continue to qualify for the Modified Accelerated Cost Recovery System (MACRS), which allows for accelerated depreciation of investments in energy assets over a specified period, enhancing the economic return.
The Inflation Reduction Act has also extended and enhanced the Production Tax Credit (PTC), a key incentive for renewable energy production. This credit, crucial for utility-scale wind, biomass, and geothermal production, provides a specified amount per kilowatt-hour of electricity produced. Key updates include:
- Extended Timeline: The PTC has been extended to cover facilities that begin construction by the end of 2024, with provisions for future extensions based on congressional review.
- Increased Value: The value of the PTC has been adjusted for inflation and can now be more lucrative, depending on the type of technology and compliance with prevailing wage and apprenticeship requirements, which can increase the base rate significantly.
- Applicability: Previously focused on wind and specific other resources, the PTC now includes expanded eligibility for new technologies and existing facilities that meet upgraded environmental standards.
Low Income Housing Tax Credit
Low-income housing projects yield a federal low-income housing tax credit by virtue of either (i) receipt of an al location of low-income housing tax credits from a state designated agency; or (ii) the funding of projects through tax-exempt bonds. Allocations are awarded to projects by state designated agencies based on criteria that generally include (i) project location, (ii) time period that the project is required to remain a low-income housing project, (iii) tenant population and special housing needs, and (iv) project viability.
Learn More about (LIHTC) Consulting Services
New Markets Tax Credit
The New Markets Tax Credit (NMTC) is a 39 percent credit on an equity investment to a Community Development Entity (CDE) that is claimed over a 7-year compliance period (5 percent over the first 3 years and 6 percent over the last 4 years). The CDE must then make a Qualified Equity Investment or loan to a Qualified Business in a Qualified Low-Income Community (LICs). Most Commercial and mixed-use real estate development projects located in LICs are Qualified Businesses. (Residential projects without a commercial component do not qualify.) The New Markets program is designed to encourage investments in LICs that traditionally have had poor access to debt and equity capital.
The New Markets Tax Credit and the historic tax credit are natural allies. LICs are defined as U.S. census tracts with a 20 percent poverty rate or household incomes at or below 80 percent of the area or statewide median, whichever is greater. Due to this liberal definition, 40 percent of all U.S. and most central business district census tracts qualify for the NMTCs. Because most old buildings are found in disinvested parts of any city or town, and most rehab tax credit projects are located in central business districts, in 2005 68 percent of all HTC Part 3 approvals were granted for properties in qualified NMTC census tracts.
Unlike the Federal HTC’s, the annual dollar volume of NMTC’s allocated by the U.S. government is capped. That means that CDEs must compete against each other to receive an allocation of New Markets Credits during each annual funding round. Once a CDE wins an allocation, it partners with an investor who is attracted by the tax benefits offered by the New Markets Tax Credit. In order to claim the credit, the investor must make an equity investment in a CDE.
Rumford Center - Rumford, Rhode Island
