SOLAR TAX CREDITS

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SOLAR TAX CREDITS

• Green Homes and Sustainable Communities
• August 7 and 8, 2008
• Jeffrey S. Lesk
• Nixon Peabody LLP

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Affordable Housing
New Markets
Tax Credits
Historic
Renewable Energy
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Affordable Housing
New Markets
Tax Credits
Historic
Renewable Energy
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Why Solar?

• Escalating energy costs
• Uncontrollable costs
• Unpredictable costs
• Caps on rental income

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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

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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

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How the Solar Credit Works

• SOLAR ENERGY INVESTMENT TAX 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

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• 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

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

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Structures

• SOLAR COMPANY OWNS
• Owner purchases cheap energy hedge
• Solar Company qualifies for tax credits
• Solar company syndicates
• Power purchase agt./possible buy-out

• DEVELOPER/OWNER OWNS
• Owner gets free energy
• Owner qualifies for tax credits/depreciation
• Owner syndicates
• Owner maintains/repairs (and gets warranties)

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COMBINING PTCs and LIHTCs - OWNERSHIP MODEL
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Combination of Solar Credits LIHTC 9 Credits
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Solar Added to a 4 LIHTC
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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?

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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

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Thank you!

• Jeffrey S. Lesk
• jlesk_at_nixonpeabody.com