Historic Tax Credit Syndication
If a certified historic structure or a building constructed prior to 1936 is being renovated, the project may be entitled to receive rehabilitation tax credits from the federal government, representing up to 20% of qualified rehabilitation expenditures. These tax credits can be either used to offset the building owner's federal tax liability or transferred to a corporate investor in exchange for additional equity capital that can be utilized for long-term financing of the project. Because the Internal Revenue Code's Passive Activity Rules severely limit and, sometimes, prohibit the use of tax credits by individuals, most building owners syndicate the tax credits to a third-party corporate investor who can utilize the tax credits.
Syndicated tax credit transactions require the tax credit investor to be admitted into a legal entity, such as a limited partnership or limited liability company that will either own the building or hold a long-term operating lease on the building. In these circumstances, the tax credit investor acts as either the limited partner or investor member while the building owner serves as either the general partner or managing member.
The entities that actively invest in rehabilitation tax credit properties are generally Fortune 500 corporations with substantial federal income tax liabilities. The vast majority of completed tax credit syndication transactions generate in excess of $1 million in tax credits, require only a single corporate investor, and are highly structured, tax code intensive deals.
| ||Project A||Project B||Project C|
|Qualified Rehab Expenditures||$80,000,000||$40,000,000||$20,000,000|
|Tax Credit Type||20%||20%||10%|
|Tax Credit Amount||$16,000,000||$8,000,000||$2,000,000|
|Price Per Tax Credit Dollar||$1.10||$1.00||$.90|
|Tax Credit Equity Raised||$17,600,000||$8,000,000||$1,800,000|