Welcome to statesidecapital.com.
State Housing Tax Credits and Tax Credit Funds.
A Win-Win Proposition.
At Stateside Capital, we specialize in pooling together state tax credits into managed funds that enable investors to reduce taxes on their state of Georgia income. We have access to state tax credits generated through leading real estate developers.
Housing tax credits:
- Are allowed in Georgia and other certain states to be separated from federal credits and sold to private investors.
- Can reduce, and in some cases completely eliminate, state income taxes
- Are not limited by federal alternative minimum tax
- Can be transferred without penalty
- Provide additional incentives to develop property within the applicable states
- Satisfy bank Community Reinvestment Act (CRA) requirements
that will benefit other Georgians. ”
——— Jet Toney ———
Principal
Cornerstone Communications Group, Inc
Frequently Asked Questions About the
Affordable Housing Tax Credit Programs
and Stateside Capital, LLC
1. What are Affordable Housing Tax Credits?
Affordable Housing Tax Credits, also called Low Income Housing Tax Credits (LIHTC), are special tax incentives created by the Federal government to encourage the development of quality, affordable housing in locations where market rate rents have exceeded the level many individuals can afford - individuals like senior citizens and families with low to moderate incomes. They are authorized and administered by the Internal Revenue Service under IRS code section 42 under the 1986 Tax Act.
According to the Office of Economic Affairs of the U.S. Department of Housing and Urban Development, the Federal housing tax credit program has provided approximately 90,000 new apartment units annually and approximately 1,300 development projects each year from 1995 to 2002, the last year for which updates to the HUD database are available. Nearly two-thirds of these are new construction, with most tax credits issued for developments in urban areas of the Southern U.S.
2. Who administers the federal program?
While the Internal Revenue Service is responsible for oversight of the program, states are responsible for administration and monitoring. For example, each state receives an annual allotment of tax credits based on population. For 2006, each state is allowed $1.90 per resident or $2,125,000 - whichever is greater.
The tax credit allocation process is stringent and highly competitive:
- State agencies first review and rank applications for tax credits.
- The highest ranking or scoring developments receive allocations.
- Each state establishes its own criteria for awarding credits and lists them in a document required by the IRS called a “Qualified Allocation Plan” (QAP). By IRS rules, QAPs prioritize projects according to which developments provide the greatest number of affordable housing units for the highest number of low income renters. This process ensures affordable housing for the longest period of time. In addition, IRS rules require that states reserve a minimum of 10 percent of their allocated credits for nonprofit developers or owners.
3. What are State Tax Credits and how do they differ
from Federal Tax Credits?
In a subsequent modification of the 1986 Tax Act, Congress allowed states to create their own tax credits to reduce state tax liabilities by “bifurcating” or separating them from the federal affordable housing tax credits.
In 2001, the Georgia Legislature unanimously passed the Georgia Housing Tax Credit, with Georgia becoming one of fifteen states that provides its own tax credits. They are an added incentive to encourage private developers to create much needed affordable housing units in Georgia.
Georgia state tax credits are extremely flexible. They can be used not only to offset state income tax, but also insurance company premium taxes. They are freely transferable from investor to investor.
In Georgia - as well as Missouri, Arkansas, North Carolina, Utah, Hawaii and Massachusetts - participants can acquire a partnership interest solely in the stream of state tax credits with no direct participation real estate income or risk. It’s a unique opportunity for corporations and high net worth individuals to acquire as many tax credits as necessary to satisfy their state tax liability without a direct investment in a specific property.
4. Who can invest in state tax credits?
State tax credits are solid investments for qualified high net worth individuals and corporations that have a significant state tax liability. Stateside Capital can provide further information about specific qualifying criteria.
5. Why should someone invest in tax credits?
The benefits of state tax credits are two-fold: social and financial. First, state tax credits provide a social benefit by encouraging real estate developers to build or rehabilitate necessary affordable housing for sectors of the public that are increasing. Second, both federal and some state governments like Georgia are providing specific financial incentives to encourage the private sector to create this housing. Some of these incentives are:
- Reduced taxes. State tax credits are a dollar-for-dollar offset or reduction in the investor’s state tax liability.
- Increased cash. Tax credits and their related benefits increase cash flow and positively impact net income for both investors/purchasers and developers.
- Regulatory benefit. Community banks can utilize state tax credits for their own account or their customers’ accounts, helping banks satisfy their Community Reinvestment Act (CRA) obligations.
- Insurance company benefit. Insurance company investors receive a dollar-for-dollar offset or reduction of premium tax liabilities since state tax credits are considered qualified investments.
- Transferability. State tax credits are transferable. Should an investor’s or credit holder’s liability change, the state tax credits may be transferred to another person.
- Longevity. State housing tax credits are a predictable, long-term investment that reduces the credit holder’s quarterly and annual state tax payments over a period of 10 years.
- Carry-forward provision. Most state housing tax credits have carry-forward provisions, normally for three years, for unused credits.
6. Are there other similar affordable housing tax credit programs?
No. The Federal and state programs are the only types of programs available to developers to spur the creation of affordable rental housing.
7. How is rent established for LIHTC properties?
Rental rates do have some limitations. There are strict Federal requirements on these rates in order for developers to participate in the program. Proposed projects must meet one of the following requirements.
- At least 20 percent or more of the units must be rented to households with incomes not exceeding 50 percent of the Area Median Income (AMI) or
- At least 40 percent or more of the units must be reserved for households with incomes not exceeding 60 percent of the AMI.
8. How do developers know what the AMI is for a particular project?
The U.S. Department of Housing and Urban Development (HUD) calculates the AMI for each county in each state.
9. What is Stateside Capital’s role in this process?
Stateside Capital is a state tax credit, or equity, syndicator. We manage the process by connecting private investors who need state tax liability relief with developers seeking cash for construction of qualified affordable housing. We structure an equity fund using the investor’s capital. Then on behalf of that fund, purchase large blocks of a developer’s state tax credits at a negotiated price.
New equity funds are organized as limited partnerships, with Stateside Capital as the general partner and the investors as limited partners. We are responsible for organizing and managing the fund, which includes:
- Raising investment capital
- Acquiring, underwriting, and making investments in properties
- Providing asset management and compliance monitoring
- Managing the financial, legal and accounting activities associated with the fund.
Stateside Capital uses a limited partnership structure with a view toward minimizing its investors’ exposure to risks and limit investors’ financial liability only to the amount of their investment. Stateside forms limited partnerships for each of its equity funds.
10. Where can I get more information about Georgia State Tax Credits?
Visit our links page or our state tax credits page. You can also call Stateside Capital at 404-250-4190.
Welcome to the profitable world of tax credit funds and state tax credits. Welcome to Stateside Capital.
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