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Combining Historic Tax Credits and New Markets Tax Credits. National Historic Tax Credit Conference - 2007 10:15-11:15 am Thursday, November 8, 2007. New Markets Tax Credit Fundamentals. NMTC Synopsis - PowerPoint PPT Presentation
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Combining Historic Tax Credits and New Markets Tax Credits
National Historic Tax Credit Conference - 2007
10:15-11:15 am
Thursday, November 8, 2007
New Markets Tax Credit Fundamentals
NMTC Synopsis
A federal tax credit available to those that provide equity (QEIs) to certain certified community development entities (CDEs) that in turn lend or invest (QLICIs) in qualified businesses (QALICBs) located in low-income communities (LICs).
New Markets Tax Credits
What is a Qualified Business?
• Any corporation or partnership (including nonprofits) engaged in the active conduct of a qualified business; must meet requirements regarding gross income, tangible property, services performed, collectibles, and nonqualified financial property
• No financing of residential rental property
– Mixed use okay
• Restrictions on certain types of business operations and tenants
– E.g. massage parlor, hot tub facility, liquor store, gambling facility
New Markets Tax Credits
How They Work
Tax Credit Investor
CDE (Subsidiary)
QEI ($100)
Tax Credits over 7 years ($39) and Cash Return
Property Owner (QALICB)
Suballocation of Tax Credit Authority
Loan/Equity QLICI (85%+ of QEI)
CDE (Allocatee)
Typical HTC Structure (Single Entity)
TenantsTenants
RentalPayments
Tax Credit Investor LLC
Tax Credit Investor LLC
Construction/Perm Lender
Construction/Perm Lender
Managing Member(Developer Affiliate)
Managing Member(Developer Affiliate)
HistoricTax Credit
Equity
99.99% Credits, Profits & Losses and Cash Flow
LoanProceeds
DebtService
Payments
Tax Credit, LLC(Property Owner)
Tax Credit, LLC(Property Owner)
Tax Credit InvestorTax Credit Investor
.01% Credits, Profits & Losses, Fees and
Cash Flow
DeveloperEquity
DeveloperDeveloperDev.Fee
Legal Considerations
Pros
• $$$$
• High percentage of historic buildings in Low-Income Communities
• Similarity of basic structure
• $$$$
Legal Considerations
•“Related Party” requirements limit equity
•Operational limitations
– Subtenant mix
– Mixed-use
•Additional guaranties
•Different compliance periods
•Lack of guidance on making equity QLICIs
– CDFI Fund
– IRS
•Increased complexity
Cons
Master Tenant/NMTC Structure
Sub-Tenants/End Users
Sub-Tenants/End Users
RentalPayments
Tax Credit Investor LLC
Tax Credit Investor LLC
Construction/Perm Lender
Construction/Perm Lender
Managing Member(Developer Affiliate)
Managing Member(Developer Affiliate)
100% Credits, Profits & Losses, and Cash Flow
LoanProceeds
DebtService
Payments
.01% Credits, Profits & Losses,
Fees andCash Flow
DeveloperEquity
HistoricTax Credit
Equity
Master Tenant, LLC(Master Tenant)
Master Tenant, LLC(Master Tenant)
Landlord, LLC(Property Owner/Lessor)
Landlord, LLC(Property Owner/Lessor)
99.99% Credits, Profits & Losses, Fees and Cash Flow
Pass-through of Historic Tax Credits & Share of Residual
Lease Payment &Equity Investment
Tax Credit Investor
Tax Credit InvestorCDECDE
QLICI
Single Member LLC(Disregarded Entity)
Single Member LLC(Disregarded Entity)
Non-Member Manager
QALICBQALICB
QLICI
Tax Credit Investor
Tax Credit Investor
QEI
Dia:BeaconBeacon, New York
Thank you
Merrill Hoopengardner, Esq.
401 9th Street, NWSuite 900Washington, DC 20004
202.585.8169202.585.8080 (Fax)
