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COMBINING SOLAR TAX CREDITS AND LOW-INCOME HOUSING TAX CREDITS

COMBINING SOLAR TAX CREDITS AND LOW-INCOME HOUSING TAX CREDITS. IPED May 22, 2009 Jeffrey S. Lesk Nixon Peabody LLP. Affordable Housing. New Markets. Tax Credits. Historic. Renewable Energy. Affordable Housing. New Markets. Tax Credits. Historic. Renewable Energy. Affordable Housing.

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COMBINING SOLAR TAX CREDITS AND LOW-INCOME HOUSING TAX CREDITS

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  1. COMBINING SOLAR TAX CREDITS AND LOW-INCOME HOUSING TAX CREDITS IPED May 22, 2009 Jeffrey S. Lesk Nixon Peabody LLP

  2. Affordable Housing New Markets Tax Credits Historic Renewable Energy

  3. Affordable Housing New Markets Tax Credits Historic Renewable Energy

  4. Affordable Housing Tax Credits Renewable Energy

  5. Why Solar for Affordable Housing? • Escalating energy costs • Uncontrollable costs • Unpredictable costs • Caps on rental income

  6. Sizing and SelectingSolar Array • Consult with Engineer • Building Footprint/Configuration • Electrical Demand Load • Cost (consider tax credits, rebates, net metering) • Who pays utilities? • Amount of available LIHTCs

  7. Designing for Sola r • Building Footprint/Configuration • Lot Size • Land Use Restrictions • Battery Back-up/Inversion Equipment (design and location) • Integrated Design • Only part of the energy reduction puzzle

  8. SOLAR ENERGY INVESTMENTTAX CREDITS (Section 48 of IRC) INVESTMENT: 30% of cost of facility All in year placed in service Investment in qualifying equipment TCs to owner of equipment How the Solar Credit Works

  9. Recapture potential: 5 years (20% vesting/year) • Reduced by grants (if don’t take into income) • Reduces depreciable basis by 50% of the credit (result: depreciate 85% of equipment) • Depreciate over 5 years (50%bonus for 2009) • Favorable AMT treatment (can be used to reduce AMT)

  10. Placed in service by 1/1/17 (or revert to 10%) • Cost Certification by third-party accountant • Submission to IRS on Forms 3468 and 3800 (General Business Credits) • Can be exchanged for grants for 2009/2010 projects (commenced or completed)

  11. Structures • DEVELOPER/OWNER OWNS • Owner gets “free” energy • Owner qualifies for tax credits/depreciation/other benefits • Owner syndicates • Owner maintains/repairs (and gets warranties) • SOLAR COMPANY OWNS • Owner purchases “cheap” energy + hedge • Solar Company qualifies for tax credits/other benefits • Solar company syndicates • Power purchase agt./possible buy-out

  12. COMBINING PTCs and LIHTCs - OWNERSHIP MODEL

  13. Combination of Solar Credits & LIHTC 9% Credits

  14. Combination of Solar Credits & LIHTC 9% Credits

  15. Combination of Solar Credits & LIHTC 9% Credits

  16. Combination of Solar Credits & LIHTC 9% Credits

  17. Issues with Combining Viewed as double dipping? Per-unit cost and subsidy caps in QAPs QAPs encourage --- but how much is too much? Is it commercial property (excluded from basis) –sale of energy, RECs? Includable in development cost from which Development Fee is based? Utility allowance issue Coordination with other project documents Is there a market for the credits?

  18. Investor Reaction First year boost 5-year ACRS/50% for 2009 (not all value) Utility savings More predictable energy costs Low recapture potential Qualified selection, installation, maintenance Adequate Insurance Carriage turns back into a pumpkin – 12/31/17 Green is good

  19. But Wait – There’s More…..

  20. Nearly every state incorporates some green incentives into its LIHTC program. • Threshold Requirements. • Points • Non-Numeric Preference

  21. 2008 (HERA) ACT - QUALIFIED ALLOCATION PLANS • QAPs must take into account: • energy efficiency • historic nature of projects

  22. State Green Incentives and Policies 43 states have additional green building initiatives. Net-metering 42 States Income tax credits/deductions 16 States Special property tax assessments 22 States Sales tax exemptions 15 States Green grants 16 States Favorable loans for green developments 14 States Renewable energy production incentives 12 States Green rebates 14 States Preference for green building permits 4 States Utility rebates (All states have at least one participating utility)

  23. Local Green Incentives and Policies Expedited Permitting Property Tax Abatement Green grants Favorable loans for green developments Green rebates Preference for green building permits Green Building Centers

  24. Want to learn more?Green Homes and Sustainable Communities The changing landscape for financing, developing, and managing green affordable housing August 6 & 7, 2009 Boston, MA www.ipedinc.net

  25. Thank you! • Jeffrey S. Lesk • jlesk@nixonpeabody.com

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