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IRA brings additional tax credit equity opportunities to affordable housing

Updated: Sep 21, 2023

By Ann Melone, U.S. Bancorp Impact Finance Affordable Housing Business Development Officer

When the Inflation Reduction Act of 2022 (IRA) was signed into law by President Biden on Aug. 16, 2022, U.S. Bancorp Impact Finance quickly formed a cross-disciplinary team to begin to understand the implications of the Act on our affordable housing developer partners and put into place the necessary approvals so we could invest in the newly expanded credits.

The IRA renewed and expanded the Section 45L, which previously was only authorized one year at a time and reduced LIHTC basis. The credit is now authorized for 10 years, does not reduce LIHTC basis, and is available on a variable basis from $500-$5,000 per unit, depending on the level of efficiency selected.

Impact Finance recently closed on a 99-unit new construction family project in Omaha, Nebraska, with a commitment to invest in 45L credits, along with federal LIHTCs and other sources. The project team is targeting $2,500 per unit, which results in $247,500 in additional credits, assuming all units will qualify for the credit. The proceeds from the equity will be used to pay developer fees once the certification is provided.

Our team is looking forward to more opportunities around the corner that we believe will provide long-term benefits to owners of affordable housing through solar installations. Section 48E Renewable Energy Investment Tax Credits, which had been stepping down, were renewed at a 30% subsidy on installation cost. Formerly, the code required a 50% reduction in LIHTC basis when 48E credits were claimed, but this reduction has been eliminated. Also, the IRA authorized the Low-Income Communities Bonus Credit Program, which applies on top of the investment credit for certain energy property less than five megawatts: 10% bonus for low-income communities or on Indian land; and a 20% bonus for LIHTC projects. Bonus credits are limited in each of 2023 and 2024 and must be awarded through the Department of Energy (DOE).

DOE has more information and links on its website: Low-Income Communities Bonus Credit Program | Department of Energy and applications for 2023 are expected to be open in early fall 2023.

We thrive on constantly learning and being nimble to best serve our clients and collaborate with key partners. The primary takeaways from changes authorized by the IRA are:

  1. Developers should work with their architects, contractors, energy consultants and accountants to determine eligibility for 45L or 48E credits. These credits can bring additional equity to pay for energy efficient elements you may already plan on including.

  2. Watch for opportunities to apply to the DOE for a boost to energy production credits for affordable housing communities in 2023 and 2024.

  3. Work with your financing team to understand the requirements and timing to bring this equity into your project successfully.

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