What are tax credits?
Tax credits are tools the federal government and state governments use to encourage real estate development that is necessary and beneficial to a community, but might not be financially feasible, strictly relying on the private market. Such developments include affordable housing, historic rehabilitation, and commercial development in underserved or distressed areas.
Tax credit programs include Low-Income Housing Tax Credits (LIHTCs), Historic Rehabilitation Tax Credits, New Markets Tax Credits and Solar (and other renewable energy) Tax Credits. While the details of each program differ, they are alike in that developers make commitments relevant to the program’s goals. The commitments may pertain to the people their development will serve, the rents they will charge, or the energy efficiency of their design, for example. The program’s regulators award tax credits to the developers in exchange for delivering on those commitments. The amounts and timing of these tax credits vary, but in all cases developers will seek to “sell” these credits, or to sell interests in the properties that generate these credits, to an investor to obtain the necessary equity to complete the development.
What are the benefits?
Tax credits are a valuable resource because they benefit all stakeholders of a community. The investor gains a competitive return on investment. The developer gains access to capital to complete a project that would not otherwise have been financially feasible. And the community gains affordable housing, businesses, or investments of the quality and in the areas that would not traditionally attract such investment without enhanced incentives.
- Competitive returns: The returns are more predictable and less volatile than other investments because of the regulatory guidelines of the tax credit programs.
- Decreased tax liability: The combination of tax credits and passive losses typically reduces the investor’s tax liability.
- CRA consideration: Financial institutions earn positive consideration toward their regulatory ratings under the Community Reinvestment Act (CRA).
- Stronger communities: Tax credit investments provide a positive and visible means for corporations to demonstrate their commitment to the communities in which they live and work.
Tax credits offer a company and its shareholders a safe, sound, and profitable investment that strengthens the communities in which it does business
What is VCDC’s role?
VCDC functions as an Equity Fund Manager (or syndicator) of tax credit investments. We raise capital from multiple investors, organize it into equity funds, and deploy that capital as equity investments into tax credit producing properties.
VCDC Equity Funds invest in properties that produce Low-Income Housing Tax Credits (LIHTCs), Historic Rehabilitation Tax Credits, New Markets Tax Credits and Solar (and other renewable energy) Tax Credits. The investor enjoys the benefits of tax credit investing; VCDC manages the details, from concept through the 15-year compliance period. The tax credits from each program provide a dollar-for-dollar reduction in the investor’s federal tax liability.