LIHTC developers: Increase equity pricing lost through new corporate tax rates with cost segregation

Authored by Don Bernards and Robert Moczulewski

In anticipation of a corporate tax rate decrease, the low-income housing tax credit industry was predominantly underwriting deals assuming a 25 percent corporate tax rate through the last half of 2017. However, the additional 4 percent drop to a 21 percent corporate tax rate made law through the Tax Cuts and Jobs Act equates to an approximate 3- to 4-cent drop in pricing.

Under the new tax law, multifamily buildings may immediately expense 100 percent of five- and 15-year property. Therefore, a cost segregation study may be more important than ever. By assessing the potential benefit of cost segregation with your tax credit investor during the letter-of-intent stage, you can increase the time value tax benefits delivered to the investor which can equate to a small increase in equity pricing.

Learn more about the many changes to the depreciation and expenses rules in our recent insight, Untangling tax reform.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.