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Capital Absorption Opportunity · Federal funding and tax credits

Tax Credit Equity Investors and Placements

Definition

For a project sponsor, a tax credit equity placement converts federal credits the project generates into up-front equity: investors pay in cash for the right to claim the low-income housing credit[1], the new markets tax credit through a qualified community development entity[3], or the historic rehabilitation credit.[5] In exchange, the project takes on the credits' compliance obligations, such as the 15-year low-income housing compliance period.[1]

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

  1. Tax Reform Act of 1986, Pub. L. 99-514, § 252, 100 Stat. 2189. Created the low-income housing credit (26 U.S.C. § 42), including the 10-year credit period and 15-year compliance period. Official text: govinfo.gov, U.S. Government Publishing Office.
  2. One Big Beautiful Bill Act (popular name), Pub. L. 119-21, § 70422, 139 Stat. 234. Permanently increased state low-income housing credit ceilings and lowered the tax-exempt bond financing threshold (26 U.S.C. § 42(h)). Official text: govinfo.gov, U.S. Government Publishing Office.
  3. Community Renewal Tax Relief Act of 2000 (H.R. 5662, enacted by Consolidated Appropriations Act, 2001, § 1(a)(7)), Pub. L. 106-554, § 1(a)(7) [H.R. 5662, § 121], 114 Stat. 2763A-605. Created the new markets tax credit (26 U.S.C. § 45D) for qualified equity investments in qualified community development entities. Official text: govinfo.gov, U.S. Government Publishing Office.
  4. One Big Beautiful Bill Act (popular name), Pub. L. 119-21, § 70423, 139 Stat. 235. Made the new markets tax credit allocation permanent (each calendar year after 2019) and limited carryover of unused allocation to five years. Official text: govinfo.gov, U.S. Government Publishing Office.
  5. Tax Cuts and Jobs Act (popular name), Pub. L. 115-97, § 13402, 131 Stat. 2134. Rewrote the rehabilitation credit (26 U.S.C. § 47) as a 20 percent credit limited to certified historic structures, claimed ratably over five years. Official text: govinfo.gov, U.S. Government Publishing Office.

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