What Tax Credits are Available for a Housing Developer?
As a leading affordable housing provider in South Dakota, we at South Dakota Housing are often asked about the various financing programs available for housing developments. We understand that these programs can play a significant role in developing affordable housing. This blog post is about housing tax credits for housing development in South Dakota.
The Low-Income Housing Tax Credit (LIHTC) is the most widely used federal tax credit for developing affordable housing. It allows developers to claim a credit against their federal income tax liability in exchange for building and maintaining rental housing for low-income households.
Created by the Internal Revenue Code of 1986, the Housing Tax Credit Program offers a reduction in tax liability to owners, subject to restrictions. Developers of housing tax credit projects typically raise equity capital for their projects by syndicating the tax credits to investors who are willing to invest in the project. The investors' return is the annual tax credit and other economic benefits generated by the project.
Other examples of tax credit available to finance housing developments:
New Markets Tax Credit (NMTC): This tax credit is designed to encourage investment in low-income communities. The NMTCs are awarded by Certified Development Entities to investors who receive a tax credit against their federal income tax liability in exchange for investing in a qualified low-income community business or real estate project. NMTC cannot be used solely for multifamily developments; there must be at least a 20% commercial property component in the development.
Historic Preservation Tax Credit (HPTC): This tax credit is available to rehabilitate historic buildings. The State of South Dakota Historic Preservation Office - South Dakota State Historical Society (sd.gov) administers the program. Developers can receive the tax credit on certified renovation expenditures of a historic building.
When developing a housing project, it is essential to work with a tax professional familiar with the available credits and the requirements to qualify for them. Each program has its own set of rules and regulations, and it is critical to understand these requirements to ensure that the project qualifies for the credits.
In summary, there are a variety of tax credits available to developers and investors looking to build or rehabilitate affordable housing units in South Dakota. Tax credits can play a significant role in the development of affordable housing. These credits can be used in combination to make housing developments more financially viable and to increase the overall affordability and accessibility of housing in our state.
Learn more about South Dakota administration of Housing’s Tax Credits, here. If you have any further questions about these tax credits or are interested in applying for them, please contact us at South Dakota Housing.
