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Maximizing Solar Tax Credits for Green Housing: Insights from Nixon Peabody LLP

This comprehensive guide, presented by Jeffrey S. Lesk of Nixon Peabody LLP, covers essential aspects of solar tax credits and their significance in promoting sustainable housing. Learn about the financial benefits of solar energy, including investment tax credits, depreciation options, and their integration with affordable housing models. The discussion emphasizes strategic planning for energy costs, the impact of design on solar efficiency, and the importance of partnerships with solar companies. Gain insights into navigating regulations and maximizing available tax incentives for green communities.

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Maximizing Solar Tax Credits for Green Housing: Insights from Nixon Peabody LLP

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  1. SOLAR TAX CREDITS Green Homes and Sustainable Communities August 7 and 8, 2008 Jeffrey S. Lesk Nixon Peabody LLP

  2. Affordable Housing New Markets Tax Credits Historic Renewable Energy

  3. Affordable Housing New Markets Tax Credits Historic Renewable Energy

  4. Why Solar? • Escalating energy costs • Uncontrollable costs • Unpredictable costs • Caps on rental income

  5. Sizing and SelectingSolar Array • Consult with Engineer • Building Footprint/Configuration • Electrical Demand Load • Who pays utilities? • Cost (consider tax credits, rebates, net metering) • Amount of available LIHTCs

  6. Designing for Sola r • Building Footprint/Configuration • Lot Size • Land Use Restrictions • Battery Back-up/Inversion Equipment (design and location) • Integrated Design • Only part of the energy reduction puzzle

  7. SOLAR ENERGY INVESTMENTTAX CREDITS (Section 48 of IRC) INVESTMENT: 30% of cost of facility All in year placed in service Investment in qualifying equipment TCs to owner of equipment How the Solar Credit Works

  8. Recapture potential: 5 years (20% vesting/year) • Reduced by grants, tax exempt bonds, subsidized energy financing • Reduces depreciable basis by 50% of the credit (depreciate 85% of equipment) • Depreciate over 5 years

  9. Placed in service by 1/1/09 • Cost Certification by third-party accountant • Submission to IRS on Forms 3468 and 3800 (General Business Credits)

  10. Structures • DEVELOPER/OWNER OWNS • Owner gets “free” energy • Owner qualifies for tax credits/depreciation • Owner syndicates • Owner maintains/repairs (and gets warranties) • SOLAR COMPANY OWNS • Owner purchases “cheap” energy + hedge • Solar Company qualifies for tax credits • Solar company syndicates • Power purchase agt./possible buy-out

  11. COMBINING PTCs and LIHTCs - OWNERSHIP MODEL

  12. Combination of Solar Credits & LIHTC 9% Credits

  13. Solar Added to a “4%” LIHTC

  14. Issues with Combining • Viewed as double dipping? • Per-unit cost and subsidy caps in QAPs • QAPs encourage --- but how much is too much? • Is it commercial property (excluded from basis) –sale of energy, RECs? • Includable in development cost from which Development Fee is based? • Utility allowance issue • Coordination with other project documents • Is there a market for the credits?

  15. Investor Reaction • First year boost • 5-year ACRS (not all value) • Utility savings • More predictable energy costs • Low recapture potential • Qualified selection, installation, maintenance • Adequate Insurance • Carriage turns back into a pumpkin – 12/31/08 • Green is good

  16. Thank you! • Jeffrey S. Lesk • jlesk@nixonpeabody.com

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