Tax Credit Financings and Related Real Estate Tax Matters

What are tax credit financings?

Tax credit financing is a method of funding real estate projects by leveraging federal or state tax credits. In real estate transactions, tax credits help attract investors and facilitate affordable housing development, historic preservation, and renewable energy projects. For example, the Low-Income Housing Tax Credit (LIHTC) program encourages private investment in affordable housing development by providing tax credits to investors. These credits offset some of the investor’s federal income tax liability, making the investment more attractive.

One application of tax credit financing in Florida real estate is rehabilitating historic buildings. The Federal Historic Preservation Tax Incentives program provides a 20% tax credit for the certified rehabilitation of historic structures. A developer could utilize these tax credits and additional state or local incentives to finance the restoration of a landmark building in Florida, turning it into residential or commercial space while preserving its historical integrity.

Need help with creating, structuring, or enforcing real estate transactions? Schedule your consultation today with a top real estate transactional attorney.

Which Florida laws, rules, and regulations apply to tax credit financings?

In Florida, tax credit financing transactions follow a combination of federal and state laws, rules, and regulations. At the federal level, the Internal Revenue Code (IRC) contains provisions for various tax credit programs, such as the LIHTC (IRC §42) and the Historic Preservation Tax Incentives (IRC §47). These sections of the IRC outline the eligibility criteria, credit allocation, and compliance requirements for each program.

At the state level, Florida has supplemental laws and regulations that impact tax credit financings. For example, the Florida Housing Finance Corporation (FHFC) administers the LIHTC program in the state and issues Qualified Allocation Plans (QAPs) outlining the state’s priorities and requirements for allocating tax credits. Additionally, the Florida Division of Historical Resources administers the state’s historic preservation tax credit program, providing guidance on eligibility and application processes for developers seeking to utilize these credits in their projects.

What are common issues associated with tax credit financings that lead to litigation?

The following issues tend to escalate transactional disputes to litigation:

Eligibility disputes: Conflicts may arise over whether a project meets the requirements for receiving tax credits, such as income restrictions or qualifying property types.
Non-compliance: Failure to adhere to the strict regulations governing tax credit programs could result in investors losing tax benefits, leading to disputes.
Allocation of credits: Disagreements might occur over the division of tax credits among partners or investors, which could lead to legal action.
Recapture events: If a project ceases to meet the required program criteria, the government could recapture tax credits, resulting in financial loss and potential litigation.
Exit strategies: When it comes time to exit a project, disputes can arise over buyout options or the disposition of the property, leading to legal conflicts.

When a set of facts is appropriate for legal advocacy or intervention, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation or another form of specialized advocacy, please contact our office to set up your initial consultation.

What are strategic measures to resolve issues and avoid litigation over tax credit financings?

Thorough due diligence: Conduct comprehensive due diligence on the project, including verifying its eligibility for tax credit programs and ensuring compliance with all applicable federal and state regulations.
Clear partnership agreements: Draft and negotiate clear, detailed partnership agreements that address the allocation of tax credits, exit strategies, and potential disputes among partners.
Maintain ongoing compliance: Establish a system to monitor and maintain continuous compliance with tax credit program requirements, including periodic reporting and timely corrective action if issues arise.
Open communication: Encourage open communication between partners and investors to address concerns and resolve potential disputes before they escalate into litigation.
Seek professional advice: Consult with experienced tax credit attorneys and accountants to ensure proper transaction structuring and compliance with all relevant laws and regulations.
Alternative dispute resolution: Include dispute resolution provisions in partnership agreements, such as mediation or arbitration, to help resolve conflicts efficiently and cost-effectively without litigation.

Please contact our office to set up your initial consultation to see what forms of legal advocacy or intervention may be available for your unique situation.

Frequently Asked Questions

Can a developer sell their tax credits to investors?

Developers can sell their tax credits to investors through “syndication.” This process allows developers to raise capital for their projects while providing investors with tax benefits.

What are the risks for investors participating in tax credit financings?

Investors in tax credit financings should be aware of risks such as the recapture of credits, non-compliance with program requirements, disputes over credit allocation, and changes in tax laws or regulations that may impact the value of the credits.

How long do tax credits last, and when can they be claimed?

The duration and timing of tax credits depend on the specific program. For example, LIHTC credits are claimed annually over ten years, while HPTC credits are claimable within one year upon the rehabilitation work’s completion and certification.

Have more questions about real estate transactions and disputes?

Crucially, this overview of tax credit financings does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.