Returns: Social & Economic
Tax credit equity in affordable housing can create financial gain by lowering the investor’s effective tax rate over the ten year credit period while also creating affordable housing aimed at providing quality housing to low and moderate income Americans. This satisfies many corporate double bottom line goals (social & economic).
Tax Advantaged Investment
Equity investors receive the tax credits, an allocation of net losses from operations, cash distributions (negotiated and limited) as well as proceeds from potential sales or refinancing of the properties.
LIHTC investments also fulfill the Community Reinvestment Act (CRA) requirements for many financial institutions. Investing in LIHTC funds also allows investors to satisfy CRA requirements while diversifying the risk platform across multiple properties.
Advantageous Accounting Treatment
Historically, LIHTC investments were accounted for as a traditional equity investment, thus negatively impacting investor's price to earnings ratios. In 2013, FASB announced a new interpretation for accounting for LIHTC investments. This new 'Proportional Amortization Method' should benefit investors in Low Income Housing and better reflect the true effects of the investment on the corporation's books.
For more information on the latest accounting change, please find Cohn Reznick's presentation on the potential effects of the new accounting change: