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

COMBINING SOLAR TAX CREDITS AND LOW-

INCOME HOUSING TAX CREDITS

IPED May 22, 2009

Jeffrey S. Lesk

Nixon Peabody LLP

Affordable Housing New Markets

Historic Renewable Energy

Tax Credits

Affordable Housing

Renewable Energy

Tax Credits

Why Solar for Affordable Housing?

• Escalating energy costs

• Uncontrollable costs

• Unpredictable costs

• Caps on rental income

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

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

How the Solar Credit Works

SOLAR ENERGY INVESTMENT TAX 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

– 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)

– 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)

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

COMBINING PTCs and LIHTCs - OWNERSHIP MODEL

9% LIHTC 4% LIHTC

Solar Panel Cost $1,000,000 $1,000,000

Solar Credit (30%)

$300,000 $300,000 (NEW: no offset for tax-exempt debt)

Housing Credit Basis (reduce by ½ solar credit)

$850,000 $850,000

Times Credit Percentage

.90% x 10 = 90% 3.25% x 10 = 32.5%

Housing Credit $765,000 $276,250

Total Credits $1,065,000 $576,250

Combination of Solar Credits & LIHTC 9% CreditsNon-DDA/QCT DDA/QCT

Cost of Solar Installation $ I,000,000 $ 1,000,000(Reduced per TE Bond %) 0% - -

Solar Tax Credits (30% x $1,000,000)

30% 300,000 300,000

Reduction to LIHTC Basis

(50% of Solar Credits)50% (150,000) (150,000)

Remaining Basis for LIHTC 85% 850,000 850,000

If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30%

130% 850,000 1,105,000

Times LIHTC Credit Rate (times 10 years)

9.00% 765,000 994,500

Equity Raised from LIHTC (assume .85/credit) *

$ 0.85 650,000 845,325

Equity Raised from Solar Credits (assume .90/credit)*

$ 0.90 270,000 270,000

Total Equity Raise due to adding Solar

920,000 1,115,325

Net Cash (Cost) Benefit of Solar Install**

(80,000) 115,325

*Prices subject to project specifics & negotiation

**Not including any State Rebates, utility incentives, or energy savings; no developer fee taken on solar




30% 300,000 300,000


(50% of Solar Credits)50% (150,000) (150,000)



130% 850,000 1,105,000


9.00% 765,000 994,500


$ 0.80 612,000 795,600

Equity Raised from Solar Credits (assume .90/credit) *

$ 0.90 270,000 270,000


882,000 1,065,600


(118,000) 65,600






30% 300,000 300,000


(50% of Solar Credits)50% (150,000) (150,000)



130% 850,000 1,105,000


9.00% 765,000 994,500


$ 0.75 573,750 745,875


$ 0.90 270,000 270,000


843,750 1,015,875


(156,250) 15,875






30% 300,000 300,000


(50% of Solar Credits)50% (150,000) (150,000)



130% 850,000 1,105,000


9.00% 765,000 994,500


$ 0.75 573,750 745,875


$ 0.85 255,000 255,000


828,750 1,000,875


(171,250) 875



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?

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

But Wait – There’s More…..

http://keetsa.com/blog/wp-content/uploads/2007/06/capitol-hill-to-go-green.jpg

Nearly every state incorporates some green incentives into its LIHTC program.

Threshold Requirements.

Points

Non-Numeric Preference

2008 (HERA) ACT - QUALIFIED ALLOCATION PLANS

• QAPs must take into account:

– energy efficiency

– historic nature of projects

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)

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

Want to learn more?

Green Homes and Sustainable

CommunitiesThe changing landscape for financing, developing, and managing green affordable

housingAugust 6 & 7, 2009

Boston, MA

www.ipedinc.net

• Jeffrey S. Lesk• [email protected]

Thank you!

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

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