Non-profit developers like HBI use historic tax
credits regularly for rehabilitation projects, which seems unlikely since we
don’t pay taxes. HBI Legal fellow Matt Welch answers Tax Credit Question
#2 in this blog post Because non-profit developers like HBI have no
federal income tax liability to which they can apply the credit, they
collaborate with private-sector investors who can utilize the credit. In this type of situation, the
developer/owner of the property typically forms an operating agreement with the
investor, which, for tax purposes, often requires a complex multi-tier
structure comprised of multiple entities.
The agreement terms differ from deal to deal based on the size of the
project, the risk involved, and other factors.
Nevertheless, the basic transaction entails the investor making a
capital contribution to the project and the developer/owner passing the tax
credit through the ownership structure to the investor. The significance of this development strategy
should not be understated: it can be a crucial piece of financing for a
non-profit developer that allows them to obtain capital for historic rehabilitation
projects that the private sector otherwise would not undertake—exactly what
Congress intended when it created the tax credit.
Historic Boston Incorporated redevelops historic properties to make urban neighborhoods thrive. We believe that reusing old places to meet current needs enriches our communities and restores neighborhood pride.
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