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Low-income Housing
Tax Credits
New Markets
Tax Credits
Energy Tax
Credits
Community Reinvestment Act
ESG
Environmental, social and governance (ESG) has recently become less of a voluntary opportunity for organizations and a regulatory reporting requirement in certain jurisdictions. Aligning an ESG strategy with tax considerations (both domestic and international) has become a standard for everyone in today’s business arena. Stakeholders are now demanding upgraded operational structures that manage the global tax rate, meet the demands of a mobile workforce, maximize incentives and remain attractive to investors – all while social responsibility underscores transparency in reporting. The different ESG and sustainability-related tax credits include:
Inflation Reduction Act (IRA)
Alternative energy tax credits
New Markets Tax Credits (NMTC)
Low Income Housing Tax Credits (LIHTC)
Property Assessed Clean Energy (PACE)
Job creation and retention credits
Historic Tax Credits (HTC)
Historic
Tax Credits
The Inflation Reduction Act (IRA) includes the largest energy incentive effort in U.S. history. It builds on the energy initiatives included in 2009’s American Reinvestment Recovery Act, creating an environment where many energy-related projects become more attractive to a growing list of entities.
The IRA provisions aim to help reduce greenhouse gas emissions across the range of fuel types, energy producers and energy users. Tax credits have been extended, enhanced and increased in size for:
Energy generation and decarbonized fuel product projects
Electric vehicle (EV) infrastructure
Manufacturing facilities and certain critical minerals essential for clean energy technologies
The IRA creates the ability to transfer credits or receive direct payments from the Internal Revenue Service (IRS). These tax credits can be acquired by your organization to lower your tax liability, up to the date of the tax return filing. There is also an emphasis on jobs and earnings growth, domestic content and environmental justice.
Baker Tilly’s energy, tax and industry specialists can help you understand the complexities and determine the best energy tax credits and incentives for your organization.
The Community Reinvestment Act (CRA) requires the Federal Reserve to encourage financial institutions to help meet the credit needs of their surrounding communities. In October 2023, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) jointly issued a rule to strengthen and modernize CRA regulations. The law is now updated to be in sync with the digital age and will play a key role in ensuring fair lending practices in lower-income areas.
To receive credit under the CRA, loans and tax credit investments, with a primary purpose of improving the circumstances for low-income households or revitalizing neighborhoods, can offer a dual benefit of tax savings and CRA credit. For more information on the CRA, contact our specialists.
Due to recent legislation, financial services organizations now have more chances than ever before to leverage tax credits, deductions and other incentives. If your organization is venturing into new markets, streamlining operations or experiencing growth, taking advantage of these federal, state and local tax credits and incentives can be beneficial in the long term.
Baker Tilly tax credits and incentives specialists provide critical support with the following:
New Markets Tax Credits (NMTC) are federal income tax credits used to encourage private investment in the commercial development of low-income communities across the United States. Your organization can help finance community projects important to you while generating attractive investment returns. This program provides tax credits for investment into operating businesses and real estate development projects located in qualifying communities by certified Community Development Entities (CDEs). The majority of NMTCs are manufacturing/industrial, healthcare and community facility projects, but they can be used to fund many business types, and they are suitable to offset certain state insurance premium taxes.
This program is set to expire at the end of 2025 but has been consistently renewed since its inception in 2001. It has strong bipartisan support and is widely expected to become permanent or receive a lengthy extension.
Low-Income Housing Tax Credits (LIHTC) encourage the development of rental housing for individuals and families with low and moderate income at rental prices established by the U.S. Department of Housing and Urban Development (HUD). The LIHTC program is a $9.5 billion per year private/government partnership, and it is the largest federal program that encourages the creation of affordable rental housing.
These credits are administered by state housing agencies based on each state’s priorities and IRS guidelines. Many types of rental properties are LIHTC-eligible, including single-family dwellings, townhouses, duplexes and apartment buildings. LIHTCs are typically granted over a 15-year compliance period, but the tax credits can be taken over a 10-year period.
Historic Tax Credits (HTC) are for the rehabilitation of historic structures and apply specifically to preserving income-producing historic properties. Many states have HTC programs that are commonly 20-25% of qualified rehabilitation expenditures. Some state credits are taken in the first year, with other state and federal credits taken over five years. In addition, state credits can be purchased or transferred to others and do not need to be allocated in proportion of partnership profits, meaning you can acquire what you need to lower your state tax liability. Baker Tilly has developed a successful track record of identifying and securing HTCs and facilitating partnerships that are key to growth. We understand the complex rules and regulatory requirements associated with federal and state HTCs. Our team can translate this understanding into optimized development capital for those interested in the rehabilitation and re-use of historic buildings.