"Real Estate Finance Post-Tax Reform: New Markets Tax Credit, Rehabilitation Tax Credit, and Qualified Opportunity Zones," by Norman Lencz and Christopher Davidson, was published in the May-June 2018 edition of the Journal of Passthrough Entities. Here is an excerpt:
Although the House version of the Tax Cuts and Jobs Act would have eliminated the New Markets Tax Credit along with the Rehabilitation Tax Credit, fortunately for real estate developers and investors, each of these credits was preserved in the final version of the enacted legislation. In addition, the Tax Cuts and Jobs Act introduced new Code Sec. 1400Z, which provides a federal income tax deferral mechanism for re-investments in a "qualified opportunity zone." As discussed more fully below, some of the framework for new Code Sec. 1400Z is similar to that of the New Markets Tax Credit in Code Sec. 45D.
This column provides a primer on each of these federal tax credits, beginning with the New Markets Tax Credit, and how each credit can be used to provide capital for certain types of real estate development projects. After reviewing these credits, it concludes with an overview of the new qualified opportunity zone deferral, which should provide another federal tax incentive for investing in real estate developments in low-income communities.