Frequently Asked Questions About Georgia Low Income Housing Credits:
1. What are tax credits and why do they exist? Tax Credits are dollar for dollar reductions in a taxpayer’s income tax liability. They are created as an incentive to foster particular types of activities. In this case, the credits are used to encourage the development of low income housing in Georgia.
2. When did Georgia enact the low income housing credit? Georgia initially adopted a low income housing credit in 2001. The first credits weren’t available for sale until 2003. The State Tax Credit Exchange began marketing those credits in 2004. The credit has been instrumental in the development of numerous housing projects in Georgia.
3. What should my tax situation be to benefit from Georgia low income housing film credits? You should be a Georgia taxpayer (it doesn’t matter whether you are an individual, corporation or trust) with a large enough liability to benefit from the savings. Transactions cuts are minimal so a Georgia income tax liability of $25,000 tends to be the minimum threshold. The credits are beneficial whether the taxpayer is or is not subject to the alternative minimum tax for federal income tax purposes, though they are significantly more advantageous if an individual is subject to the alternative minimum tax for federal income tax.
4. Are there other taxes which the Georgia low income housing credit can be used? Yes. The Georgia low income housing credit may offset the Georgia premium tax which insurance companies owe.
5. Are the credits beneficial if I’ve already paid in to Georgia my estimated tax liability? Yes, the credits will first offset your Georgia income tax liability and any excess withholding will be refunded to the taxpayer.
6. When can I buy the credits? Typically, the credits are not for sale until late spring at the earliest. They must be acquired by the end of the calendar year.
7. Can Georgia low income housing credits be carried back on the taxpayer’s prior year’s returns if they have more credits than they can use on their current tax returns? No.
8. What happens if I have more Georgia low income housing credits than I can use on my current return? Excess Georgia low income housing credits (that is those in excess of your current year’s liability) may be carried forward for up to three years.
9. How do I acquire Georgia low income housing credits? They are acquired by investing in an entity taxable as a partnership which either directly or indirectly has invested in one or more low income housing projects located in Georgia. You receive the credits as an allocation on the partnership K-1.
10. How do I find a Georgia low income housing partnership? The State Tax Credit Exchange has several diversified Georgia low income housing funds for investors to acquire Georgia low income housing projects.
11. How do I claim the Georgia low income housing credits on my Georgia income tax return? They are reported on page 5 of Georgia Form 500 on the Credits Section. You simply attach your K-1 to the tax return.
12. What is the typical pricing range of Georgia low incomes housing credits? Buyers of these credits can expect to acquire them for 75-84 cents per credit. The later it gets in the year the more expensive. This is due to their scarcity and time value of money concepts.
13. What can of rate of return can I expect from buying film credits? Assuming you buy 100,000 of film credits for $80,000 in September and you are subject to the alternative minimum tax for federal income tax purposes, the return on investment is 20% after-tax, 40% if you consider the time value of money. These credits tend to be the most beneficial of all the Georgia tax credits.
14. If I buy Georgia low income housing credits does that increase my risk of audit? No. The Georgia Department of Revenue has indicated that the presence or absence of Georgia low income housing credits does not alter the probability of audit.
15. This seems too good to be true, is it ethical or legal? Not only is it ethical and legal, but this is something the state of Georgia wants taxpayers to do. Otherwise, the Georgia low income housing credit program would not work and Georgia would be unable to attract low income housing projects in the state.
16. Are the Georgia low income housing credits subject to recapture? Partially. Only one-third of the credits are subject to recapture if the project fails to remain qualified as a low income housing project. However, this seldom happens. Ernst & Young performed a study which indicated that less than one-tenth of 1% of all low income housing projects ever have a recapture event.
17. How do I minimize the risk of recapture? By investing in well diversified funds, such as the ones offered by the State Tax Credit Exchange. That way even if there is a recapture event with a particular project, the impact is minimal.