Novogradac Report on Tax Credits Transcript: October 14, 2008

Transcription

1 Total Word Count: 1120 (Intro music) Novogradac Report on Tax Credits Hello. It s Tax Credit Tuesday. I m Michael Novogradac. Today is Tuesday, October 14th, 2008 and you are listening to the Novogradac Report on Tax Credits, a weekly podcast focusing on affordable housing, community development and renewable energy. This week we will discuss details about the numerous energy tax credits that were included in the recently passed extender legislation. We also have an update on SB 585, a bill that was signed recently by Governor Arnold Scharzenegger that will allow the California state housing tax credit to be sold separately from the federal housing tax credit. Let s start with our review of some of the recently-extended energy incentives that can be used by developments financed by new markets tax credits and low-income housing tax credits. As you may recall from last week s discussion on the Emergency Economic Stabilization Act, Congress voted recently to extend several expiring energy tax incentives. Last Tuesday we discussed the eight-year extension of investment tax credits for solar projects and the one-year extension for the production tax credit for wind projects. This week, we will discuss several additional tax credits that were extended that may be of interest to affordable housing and community development professionals. 1

2 For example, the bill provided a one-year extension of the tax credit for new energy efficient home construction. Under Section 45L, contractors can receive a tax credit for the construction of energyefficient new homes that achieve a 30 percent or 50 percent reduction in heating and cooling energy consumption relative to a comparable dwelling. The credit equals $1,000 for homes meeting a 30 percent efficiency standard and $2,000 for homes meeting a 50 percent efficiency standard. The National Association of Home Builders reports that usage of this credit has increased nearly three-fold from 2006 levels, demonstrating that it is performing as Congress intended and gaining acceptance in the marketplace. The Emergency Economic Stabilization Act extends the Section 45L tax credit through the end of Previously, it was understood that the Section 45L credit was available to those developers and contractors that were building and selling homes. In February 2008, the IRS issued Notice , which clarified questions concerning the tax credit, including who is eligible to claim the tax credit. Based on conversations with the author of Notice , it appears that an affordable housing partnership that is leasing residential units may be eligible to claim this credit. A copy of Notice can be found online at More information about how affordable housing partnerships may be able to utilize the Section 45L tax credit will be provided in an article in next month s issue of the Journal of Tax Credit Housing. To 2

3 purchase a subscription to the Journal, please visit slash products. The Emergency Economic Stabilization Act also extended the Section 179D energy-efficient buildings deduction for five years. This deduction supports increased energy efficiency in the multifamily housing sector. Section 179D allows taxpayers to deduct the cost of energy-efficient property installed in commercial buildings. The amount deductible is as much as $1.80 per square foot of building floor area for buildings achieving a 50 percent energy savings target. The energy savings must be accomplished through energy and power cost reductions for the building s heating, cooling, ventilation, hot water and interior lighting systems. The Section 179D renewable energy incentive targeting commercial and large multifamily energy improvements has been extended through December 31st, The Emergency Economic Stabilization Act also extended the tax credit for energy-efficiency improvements to existing homes. Section 25D provides a 10 percent investment tax credit for purchases of advanced main air circulating fans, natural gas, propane, or oil furnaces or hot water boilers, windows and other qualified energy-efficient property are also included. The new law also adds certain pellet stoves as a new class of energy-efficient property eligible for a tax credit. To learn more about the many opportunities that exist to develop and invest in clean renewable energy projects, join Novogradac & Company in Washington, D.C. on November 13th and 14th for the Financing Renewable Energy Conference. We are very 3

4 fortunate to have Senator John Ensign of Nevada scheduled to speak at the event. Senator Ensign has been a member of the Senate since 2000 and is credited with introducing the Clean Air Energy Tax Stimulus Act of You can register online for this event by visiting or by calling Moving to our second topic for this week s discussion, we are pleased to report that legislation aimed at bifurcating state and federal housing tax credits in California has been signed into law by Governor Arnold Schwarzenegger. Senate Bill 585 passed the California Assembly and Senate almost unopposed this summer and was signed by Governor Schwarzenegger on September 27th. Under the new law, low-income housing projects that receive a preliminary tax credit reservation from the California Tax Credit Allocation Committee between January 1st, 2009 and December 31st, 2015 will now be able to assign the state credits among partners separate from the assignment of the federal tax credits, regardless of the proportionate ownership share of the respective partners. There has been considerable support for this change in the affordable housing community in California. It is expected that the change will increase the value of California credits because a partnership will be able allocate all of the state tax credits to one partner, and all of the federal credits to a second partner. Supporters of the new law also expect that bifurcation will increase the pool of 4

5 buyers for federal credits and make it easier to sell the state credits. This provision is currently scheduled to sunset on January 1st, The California Tax Credit Allocation Committee issued a memo last week on October 6th summarizing the new law. That memo can be found online at We at Novogradac & Company LLP extend a special thanks to California Treasurer Bill Lockyer and Executive Director of TCAC Bill Pavao for their extraordinary leadership and fortitude in initiating the bill and seeing it through the challenging legislative process. Well, that brings us to the end of this week s report. Please join us again next Tuesday when we will discuss recently announced changes that the North Carolina Housing Finance Agency and the Kentucky Housing Corporation made to their qualified allocation plans to adjust to changes in the market and changes in the law made by H.R We will also preview some of the panel discussions that will be presented at our New Markets Tax Credit Investors conference later this month. And we might even have information on new market tax credit awards. Stay tuned. This is Michael Novogradac and I ll be back next Tuesday. Thanks for listening. (outro music) 5

6 Editorial material in this transcript is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding tax credits or any other material covered in this transcript can only be obtained from your tax advisor. Novogradac & Company LLP, 2009 All rights reserved. Reproduction of this publication in whole or in part in any form without written permission from the publisher is prohibited by law. For reprint information, please send an to 6