combining solar tax credits and low-income housing tax credits iped may 22, 2009 jeffrey s. lesk...
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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 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
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 .80/credit) *
$ 0.80 612,000 795,600
Equity Raised from Solar Credits (assume .90/credit) *
$ 0.90 270,000 270,000
Total Equity Raise due to adding Solar
882,000 1,065,600
Net Cash (Cost) Benefit of Solar Install**
(118,000) 65,600
*Prices subject to project specifics & negotiation
**Not including any State Rebates, utility incentives, or energy savings; no developer fee taken on solar
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 .75/credit) *
$ 0.75 573,750 745,875
Equity Raised from Solar Credits (assume .90/credit)*
$ 0.90 270,000 270,000
Total Equity Raise due to adding Solar
843,750 1,015,875
Net Cash (Cost) Benefit of Solar Install**
(156,250) 15,875
*Prices subject to project specifics & negotiation
**Not including any State Rebates, utility incentives, or energy savings; no developer fee taken on solar
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 .75/credit) *
$ 0.75 573,750 745,875
Equity Raised from Solar Credits (assume .85/credit)*
$ 0.85 255,000 255,000
Total Equity Raise due to adding Solar
828,750 1,000,875
Net Cash (Cost) Benefit of Solar Install**
(171,250) 875
*Prices subject to project specifics & negotiation
**Not including any State Rebates, utility incentives, or energy savings; no developer fee taken on solar
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…..
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!