Solar Energy Tax Credit Syndication
If a commercial renewable energy system is being installed, the project may be entitled to receive energy tax credits from the federal government, representing up to 30% of qualified energy equipment and installation expenditures. These tax credits can be either used to offset the energy system 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 energy system 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 energy system or hold a long-term operating lease on the energy system. In these circumstances, the tax credit investor acts as either the limited partner or investor member while the energy system owner serves as either the general partner or managing member.
The entities that actively invest in energy 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.
Syndication Examples:
Project A
Qualified Rehab Expenditures:
$20,000,000
Tax Credit Type:
30%
Tax Credit Amount:
$6,000,000
Price Per Tax Credit Dollar:
$1.00
Tax Credit Equity Raised:
$6,000,000
Project B
Qualified Rehab Expenditures:
$10,000,000
Tax Credit Type:
30%
Tax Credit Amount:
$3,000,000
Price Per Tax Credit Dollar:
$0.95
Tax Credit Equity Raised:
$2,850,000
Project C
Qualified Rehab Expenditures:
$5,000,000
Tax Credit Type:
30%
Tax Credit Amount:
$1,500,000
Price Per Tax Credit Dollar:
$0.90
Tax Credit Equity Raised:
$1,350,000