The Massachusetts HDIP Tax Credit (Housing Development Incentive Program), now in its eighth year, is a desirable one-year tax credit offered to developers who build or redevelop a building into market-rate housing in one of the 26 designated Gateway Cities in the Commonwealth of Massachusetts*.  The program recently made a change in the way it allocates credits amongst projects due to the demand for credits that have been outpacing the supply of the available credit authority of $10 million per year.  The HDIP program consists of three major components:

• The creation of by a municipality designated as a Massachusetts Gateway of a Housing Development (HD) Zone;
• The creation of a Tax Increment Exemption (TIE) district, inclusive of the HD zone, within a Gateway municipality;
• The approval by the Department of Housing and Community Development (DHCD) of a funding application for a specific project located within an approved HD zone and with an approved TIE agreement.

The third component, the application process, has changed from a rolling application process to a yearly scheduled competition format similar to other credit programs that DHCD oversees.

The program change was made in July 2021 and now requires the developer to submit a pre-application (assuming the HD Zone and TIE agreement are in place) on a fixed date followed by a combined preliminary/conditional certification application, also on a fixed date.  Once the developer receives an award through the HDIP competition, the developer can complete the project and can submit an application for final certification at any time once the developer has met its leasing or sale requirement.

The MA HDIP Tax Credits can be sold or transferred to a buyer who has a tax liability in Massachusetts.  Clocktower Tax Credits works with numerous investors who are looking to buy these credits that will help reduce their tax liability.

If you have a project in Massachusetts, or anywhere in the country, that needs investor tax credit equity, don’t hesitate to call us.  We work with developers with prospective HDIP, Historic Rehabilitation, or Low-Income Housing tax credit projects seeking Federal and/or State tax credit equity, and other unique state incentives such as the Pennsylvania REAP credits.  For inquiries, please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com.

Lumber costs continue a volatile path upwards as the Russian invasion of Ukraine combines with inflation concerns to spread volatility in the lumber markets.  Since Russia began its invasion, American lumber futures have increased over 15% as weakened supply chains, sanctions and other trade issues raise concerns for materials availability for developers ready to proceed with projects after a period of relative stability for materials in the latter half of 2021.  With Russia being the world’s largest lumber exporter pre-invasion, the geopolitical crisis increases risk in an already expensive real estate market and the future rehabilitation of sites in need of significant capital improvements, as inflation eats into carefully balanced capital stacks and cash reserves.

The pricing shock harms affordable housing developments the hardest, as it becomes difficult to project future pricing for the building materials, acquire all of the necessary materials within a budget, and complete a project within the approved construction periods while expecting lower rents than market-rate housing.  To accommodate this, many projects will likely need additional funds and an increase in tax credit awards to provide an equity boost to offset costs.  This has made tax credits a valuable tool to offset uncertainty and continue boosting the supply of desperately needed housing stock.  Fortunately, a good number of state housing finance agencies have responded, using increased Federal allocations from COVID legislation to enhance tax credit awards.

Clocktower is ready to help developer clients with up-to-date equity pricing information on tax credit programs from a large array of diverse tax credit investors.  We have experience navigating complicated capital stacks and competitive tax credit application rounds.  If you have any questions or projects seeking a tax credit equity source, please reach out to Jeff Jacobson at (978) 823-0200, or email him at JJacobson@ClocktowerTC.com.

Here at Clocktower, we get a lot of calls and emails from people who ask, “I’ve got tax credits to sell.  How do I sell them?”  These are interesting requests for us, since all we do is work in Tax Credits, and the term has a very specific meaning to us.  So our first question to the requester is always, “What type of tax credits do you have to sell?”

Often, the response is “I don’t know.”  That is not a good sign, and it likely signals that what the person possesses are not tax credits, but rather tax loss carryforwards.  These are the results of losses generated by an operating business, and oft times the owner is made aware that they have been carrying these losses forward, with no hope of the enterprise ever turning a profit sufficient to utilize the losses to offset earned income.  The law does not permit these losses to be “sold,” but could potentially be monetized through the sale of the enterprise that owns the losses.  This sale should be for business purposes, purchased by an entity with a business interest in the enterprise, and not solely for tax purposes.  If the losses are accrued by and to an individual, however, then there is no way to monetize them.

The better answer is when the caller knows what credits they have earned and can describe to us if they are State or Federal tax credits, and in what amounts.  No Federal Tax Credits can be “sold”; they can only be monetized through the allocation of tax attributes within a partnership or LLC.  Further, some of these credits, like Historic Rehabilitation tax credits, vest on a day certain – in this case, the day the historic building was rehabbed and placed into service for tax purposes.  Once that date passes, the credits can never be transferred or redistributed to other entities that were not in the ownership on that given day.  But in the remaining cases, there may be some continuing tax credits that can be monetized through a re-syndication of the ownership.  Not easily done, and it may be costly – but not impossible.

Finally, if the caller possesses State tax credits, by statute, some of these can be simply sold to new buyers, while others may require re-syndication as described above.  Some state re-syndication rules may be more flexible than Federal rules.  For example, the State may allow a re-allocation of tax credits beyond the placed-in-service date, up until the end of the year of placement in service.  In the best-case scenario, the caller possesses fully transferable State tax credits that have a lengthy use or carryforward period and can be sold easily through a simple purchase and sale agreement.

All of this may sound Greek to an inexperienced holder of tax credits, but we at Clocktower have over 30 years of experience working solely in this area.  So to answer – “How do I sell my tax credits?” – call Clocktower and be prepared to explain what you possess.

To schedule a meeting or site visit with a Clocktower associate, or a phone call or Zoom session, please call President Jeff Jacobson at (978) 823-0200, or email him at JJacobson@ClocktowerTC.com.

The Port Volume Increase Tax Credit provides a tax incentive for certain companies that use Virginia port facilities. This credit may be claimed by taxpayers that are engaged in the manufacturing of goods or the distribution of goods as well as agricultural and mineral and gas entities.  Any of these entities which increase their port cargo volume by a minimum of 5 percent in a qualifying calendar year can receive a $50 credit against the tax levied for each 20-foot equivalent unit or “TEU” above their base year port cargo volume.

The program awards $3.2 million tax credits each calendar year and allots up to $250,000 per qualifying taxpayer.  However, if on March 15 of each year, the $3.2 million has not been fully allocated, then those taxpayers who have been allocated tax credits for the prior year shall be allowed a pro rata share of the remaining allocated tax credits. In such a case, a qualifying taxpayer may receive an amount greater than $250,000.

Transfer of Tax Credits

Any taxpayer which has been approved by the Virginia Port Authority and has received an allocation of tax credits is eligible to transfer credits to another taxpayer if it cannot use the credits themselves.  The transfer has to take place within one year from the date the original taxpayer received an allocation of credits.  A taxpayer may transfer a portion or all of the credits to one or more taxpayers. These credits can also be carried forward for 5 years or until the total amount of the credit has been claimed, whichever comes first.

For information on how to transfer your Port Volume Increase Tax Credits, or to purchase such tax credits, please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com.

After the White House’s initial draft of the Build Back Better (BBB) legislation excluded provisions to boost resources to build and preserve affordable housing, the recent version that passed through the House of Representatives now includes key provisions to enhance low-income housing resources.

The latest package calls for a post-inflation 10% increase in the total 9% LIHTC allocation cap annually each year from 2022-2024.  This would provide an influx of 9% LIHTCs to housing authorities that have faced increasingly competitive award rounds.  In addition, an amendment is included to reduce the tax-exempt bond financing test down from 50% to 25%, for the period 2022-2026, which will enable more projects to receive 4% tax credits and make these developments feasible.  Together, these provisions would boost the total amount of both 4% and 9% tax credits for developers to use to foster the construction of more affordable housing units at a time in which housing is becoming increasingly harder to access for the most vulnerable populations.

The bill passed a vote in the House of Representatives after House Speaker Nancy Pelosi brought the bill to a vote on Friday, November 18^th, which puts the bill on track to be approved in the coming weeks, boosting the supply of Federal Credits in 2022 and beyond.

Clocktower Tax Credits, LLC remains ready to assist all developer clients with up-to-date information on the policy changes to the LIHTC programs and how they dovetail with the financial planning of any specific project.  If there are any questions or similar projects seeking a tax credit equity source for an ambitious development, please call Jeff Jacobson at (978) 823-0200, or email him at JJacobson@ClocktowerTC.com.