Topic 08 · 6 min read
State Credits, Syndication, and Transfers
A credit you cannot use is sometimes a credit you can sell.
Many states run their own housing, historic, and energy credit programs, and a number of them allow credits to be sold to another taxpayer. Recent federal law also lets certain clean energy credits be transferred for cash. For an investor without enough tax liability, the market price of a credit can matter more than its face value.
What to know
- Transferability turns credits into cash
- Where allowed, a credit is sold at a discount to a buyer with tax to offset. Ninety cents on the dollar is a common neighborhood.
- Syndication is the older route
- Housing and historic credits are more often monetized by bringing an investor into the partnership than by an outright sale.
- State rules vary wildly
- Some states mirror the federal program, some cap total awards, some refund, some only carry forward. There is no shortcut around reading the state's own rules.
- Selling has tax consequences
- Proceeds, broker fees, and recapture exposure after a sale all need to be modeled before the deal is signed.
The tax benefit
Monetizing an unusable credit converts a deferred, uncertain benefit into money at closing.
Worked example
Selling a state historic credit
A developer earns a $500,000 state credit and has almost no state liability. Selling at 88 cents brings $440,000 of cash into the project years before the credit could have been used.
Watch out for
- Transfer markets are thin for small credits; brokers may not take the work.
- The seller often stays on the hook if the credit is later recaptured.
- Sale proceeds may themselves be taxable income depending on the program.
Terms from this topic
Transferable creditSyndicationCredit pricingRecapture liability
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