How do tax credits work?

Created under the Tax Reform Act of 1986, the Low-Income Housing Tax Credit (LIHTC) program is a dollar-for-dollar tax credit for affordable housing investments in the U.S. These federal tax credits are used by the majority of all affordable housing created in the U.S. today.

In addition, several states have enacted legislation to bring the benefits of affordable housing tax credits to the state level. These state tax credits enable private developers to build high-quality, multi-family residential communities without passing on the high cost of construction and maintenance to residents. Instead, developers can reduce the cost of development of these multi-family residential communities by applying for tax credits that are acquired by individual investors as a strategy to reduce their own tax liabilities. The investment helps make affordable housing more accessible to more families and individuals who can benefit from it.

Where are state tax credits for affordable housing available?

They are currently available in Missouri and Georgia. In addition, several other states have passed recent legislation approving the creation of state tax credits for affordable housing properties. These include Colorado, Oklahoma, Hawaii and California.

How does an individual acquire state tax credits?

They are obtained by acquiring a small interest in one of Sugar Creek Capital's affiliate state credit funds that either directly or indirectly has invested in one or more low-income housing projects located in the state where you reside.

Typically, individuals acquire state tax credits through their CPA firm or wealth management firm. They are available to taxpayers in states where affordable housing tax credits programs exist. The individual must have annual taxable income that exceeds a specified amount or have a one-time cash event.

How much do they cost?

Tax credits can be acquired for anywhere from 60 cents to 95 cents per credit depending on the time of year and the type of credit.