Investment Solutions
When it comes to selecting tax-advantage investment options, it can be challenging to identify the key criteria and get to the right solution. Bannockburn’s Investment Solution Comparative table (below) can help you uncover which programs might most apply to your goals and needs. Contact us to learn more about these and other solutions to best match your investment demands and strategies.
Investment Solution Comparative
| Program Federal | Affordable Housing Preservation Funds | § 42 Low-Income Housing Tax Credit* | § 47 Historic Rehabilitation Tax Credit* | § 45D New Markets Tax Credit* | § 48 Renewable Energy Investment Tax Credit* |
|---|---|---|---|---|---|
| Purpose | Equity Funds Preserving Affordability of Multi-Family Rental Housing | Development of Affordable Rental Housing | Preservation of Historic Buildings | Economic Development in Under Served Areas | Installation of Renewable Power Generation Equipment |
| Inception | – | 1986 | 1976 | 2000 | 1980/2005 |
| Primary Return Components |
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| CRA | Yes | Yes | Possible | Yes | Possible |
| Risk Return Profile | Low | Low | Low to Moderate | Low | Moderate – Solar |
| AMT Use | – | Yes | Yes | No | Yes |
| Credit Use | – | 10 Years | 1 Year | 7 Years | 1 Year |
| Carry Back-Forward | – | 1 Year/20 Years | 1 Year/20 Years | 1 Year/20 Years | 1 Year/20 Years |
| Compliance Period | – | 15 Years | 5 Years | 7 Years | 5 Years |
| Credit Rate | – | 4% or 9% of Property Development Expenditures | 10% or 20% of Rehabilitation Expenditures | 39% of Equity Investment | 30% of Qualified Cost of Renewable System |
Affordable Housing Preservation Funds
Preservation funds are real estate equity funds directed to preserving the affordability of multifamily rental housing with sponsor co-investment. Properties are acquired and managed to generate both current income and capital appreciation. Acquisitions typically are existing stabilized properties, minimal deferred maintenance, not turn arounds, nor major rehabs or re-tenanting; thusly may offer risk mitigation and advantages over other real estate ventures. The funds provide 8 – 10 year term, economic based investing with community reinvestment impact.
Affordable Housing Tax Credit
This program was created by the Tax Reform Act of 1986 to stimulate private capitalization for the development of critically needed affordable apartments for low-income seniors, families and individuals. The U.S. Treasury allocates tax credits to each state on the basis of population, who in turn award the credits to specific developer projects who with an equity partner develop and maintain affordable housing. Primary benefit is a 10 year credit providing investors a “dollar for dollar” reduction of tax liability with additional operating deductions and depreciation to further reduce tax liability. Information Resources >>
Historic Rehabilitation Tax Credit
The Historic Preservation Tax Credit is an incentive for the rehabilitation and ongoing utilization of income-producing historic properties. A 20% credit is available for the substantial rehabilitation of buildings certified as historic. The 1 year credit is earned and used at the time the property is placed into service. An investment also provides other benefits of property ownership – deductions, cash flow typically without the normal construction risk and generally includes repurchase options in the sixth year providing realization of residual value. Information Resources >>
Renewable Energy Investment Tax Credit
As an incentive to reduce the U.S. dependence on fossil fuels and a stimulus for renewable energy project development, including solar, the federal credit was put into place. A credit covering a significant portion of a projects cost can be claimed by a taxpayer who owns and operates an eligible renewable energy installation/facility. Economic benefits can include the tax credit directly reducing tax liability, tax losses (depreciation, interest and operating expenses), cash flow and residual value on disposition. Information Resources >>
New Markets Tax Credit
The New Markets Tax Credit was instituted to encourage financial investment and economic development in underserved communities. Substantially all of a qualified investment in a designated Community Development Entity is used to provide loans and investment to businesses operating in low-income neighborhoods. Investors receive the benefits of 39% of the cost of the investment as a credit against federal taxes, claimed over a seven year period. Investments may not be redeemed prior to the conclusion of the seven years. Information Resources >>