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Top Five Reasons to Invest in Federal Tax Credits

[fa icon="calendar"] May 4, 2015 4:30:00 PM / by Warren Kirshenbaum

Have you ever thought about investing in federal tax credits but weren’t sure how it works?

The fact that you even are familiar with tax credits and know that they can be an investment opportunity puts you ahead of the curve.  Perhaps the biggest barrier to entry with regards to investing in federal tax credits is lack of industry knowledge about tax credits and how strong an investment they can be.


To get started, let’s go over the tax credit basics.

A tax credit is a dollar for dollar credit against taxes owed to the federal government.  As a tax credit can be used to offset (or pay) your federal taxes, as if you had written a check to the federal government, a tax credit has a value of $1.00 per tax credit.

Given the relative value of a tax credit, the ability to use such a tax credit has been limited by the Internal Revenue Service (IRS).  There are many tax credits, but for our purposes we only deal with the Investment Tax Credit (ITC), and specifically those federal investment tax credits that are earned by performing a rehabilitation of a historic building or investing in renewable energy infrastructure, such as a solar array, or a geothermal heat pump. 

Generally speaking, investing in these federal ITCs means putting a financial stake into the ITC generating property, capturing the federal tax credits, and remaining in the investment for a period of time.  With the right management team, investing in federal tax credits can be a realistic [and lucrative] endeavor.


Below are the top 5 reasons to invest in federal tax credits:

  1. The yield on these investments can approach, and in some circumstances may exceed 30%, which is far more lucrative than almost any other investment you can make.
  2. The risks are carefully managed and structured such that the risk reward ratio is actually considerably low.
  3. As the tax credits are earned when the project is placed in service (subject to recapture), the investment returns are received well in advance of other investments.
  4. The actual upfront investment can be relatively low, with a maximum initial out-of pocket cost of 35% of the tax credit value.
  5. The projects generating these tax credits evince social responsibility, historic preservation, environmental proactivity, green energy, and community centric values, thereby representing an unequalled profit and altruistic opportunity that is equally attractive to small investors and large entities that are seeking a socially conscious platform.

This list could go on.  There are many potential benefits to investing in this often overlooked area.  To get more information on how to properly invest in federal tax credits, speak to a tax credit consultant today.

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Topics: Historic Rehabilitation Tax Credit, Investment Tax Credit, federal tax credits, Renewable Energy, Federal Tax Credit

Warren Kirshenbaum

Written by Warren Kirshenbaum

Warren is the President and CEO of the Cherrytree Group, a tax credit consulting, brokerage, and syndication firm.

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