About Estimated Credit Recapture Risk
Investors are required to report to the IRS and SEC on their total recapture risk amounts associated with their tax credit investments. Recapture risks are considered tax liability for investors. Tax credit recapture can occur for various reasons such as non-compliance or casualty loss. Recapture risks are calculated differently depending on type of tax credits.
You'll find the Estimated Total Credit Recapture Risk and Estimated Credit Recapture Risk (for each credit type on the deal) on the Total Benefits tab of the Benefits Schedule.
ProLinkAIM calculates recapture risk when the following fields are populated on the Total Benefits tab: Initial Year, Years of Delivery, and Years of Compliance.
Based on the values entered, ProLinkAIM makes the following calculations:
Final Delivery Year Plus One = Initial Year + Years of Delivery
Final Compliance Year Plus One = Initial Year + Years of Compliance
Multiplier Compliance Stage = 1 / (Final Compliance Year Plus One - Final Delivery Year Plus One + 1)
Current Compliance Year = Current Year - Initial Year + 1
LIHTC | HTC-Legacy | HTC-Post-Tax Reform | NMTC | |
|---|---|---|---|---|
Years of Delivery | 10 or 11 | 1 | 1 | 7 |
Years of Compliance | 15 | 5 | 5 | 7 |
Regarding recapture risk calculations, ProLinkAIM treats deals as being in one of the following stages:
Stage 1—Current year < Initial Year
Stage 2 (Delivery)—Current year >= Initial Year AND Current year < Final Delivery Year Plus One
Stage 3 (Compliance)—Current year >= Final Delivery Year Plus One AND Current year < Final Compliance Year Plus One
Stage 4—Current year >= Final Compliance Year Plus One
During the LIHTC credit delivery period (typically year 1 through year 11), recapture risks are defined as one-third of credits claimed to date. During the remaining compliance period following the end of credit delivery (typically year 12 through year 15), recapture risks decrease evenly to become $0 at the end of the compliance period.
The Estimated Credit Recapture Risk for LIHTC is calculated as follows, depending on stage:
Stage 1—Estimated Credit Recapture Risk = 0
Stage 2 (Delivery)—Estimated Credit Recapture Risk = Sum of all LIHTC Credit Amounts (from Expected Credits column in Benefit Schedule screen) from the beginning to Current Month, multiplied by the "Multiplier Delivery Stage."
Stage 3 (Compliance)—Estimated Credit Recapture Risk = Sum of all LIHTC Credit Amounts X "Multiplier Delivery Stage" X (1 - "Multiplier Compliance Stage" X (Current Compliance Year - Years of Delivery))
Stage 4—Estimated Credit Recapture Risk = 0
Note
Multiplier Delivery Stage for LIHTC = 1/3 (or 33.33333..%)
The system updates the Estimated Credit Recapture Risk when the Expected Credits column value(s) in the Benefits Schedule changes. In addition, the system updates the Estimated Credit Recapture Risk on the first day of each month.
Prior to the Tax Cuts and Jobs Act of 2017, which took effect on January 1, 2018, HTC credits were claimed in a single year, although the compliance lasted 5 years. We call this “legacy HTC.” For legacy HTC, during the delivery period (that is, the first year), recapture risks equal the full credit amounts claimed to date. During the remaining compliance period following the end of credit delivery (year 2 through year 5), recapture risks decrease each year evenly to become $0 at the end of the compliance period.
For new tax credit deals starting January 1, 2018, which we call “post-tax reform HTC,” HTC credits are claimed over a 5-year period, which coincides with the compliance period. For post-tax reform HTC, during the 5-year delivery/compliance period, recapture risks are calculated based on full credit amounts claimed to date multiplied by a ratio, which starts as 100% in year 1 and then decreases to 80% in year 2, 60% in year 3, 40% year 4, and 20% year 5. After year 5, risks become $0.
The Estimated Credit Recapture Risk for HTC is calculated as follows, depending on stage:
Stage 1—Estimated Credit Recapture Risk = 0
Stage 2 (Delivery)—Estimated Credit Recapture Risk = Sum of all HTC Credit Amounts (from Current Credits column in Benefit Schedule screen) from the beginning to Current Month, multiplied by the "Multiplier Delivery Stage."
Stage 3 (Compliance)—Estimated Credit Recapture Risk = Sum of all HTC Credit Amounts X "Multiplier Delivery Stage" X (1 - "Multiplier Compliance Stage" X (Current Compliance Year - Years of Delivery))
Stage 4—Estimated Credit Recapture Risk = 0
Note
Multiplier Delivery Stage for HTC = 1
The system updates the Estimated Credit Recapture Risk on the first day of each month.
Typically, NMTC credits are delivered over a 7-year period, at which point compliance ends; basically, for NMTC, credit delivery period and compliance period are considered the same, that is, 7 years. During this 7-year period, the entire credit amount claimed to date can be recaptured.
The Estimated Credit Recapture Risk for NMTC is calculated as follows, depending on stage:
Stage 1—Estimated Credit Recapture Risk = 0
Stage 2 (Delivery)—Estimated Credit Recapture Risk = Sum of all NMTC Credit Amounts (from Current Credits column in Benefit Schedule screen) from the beginning to Current Month, multiplied by the "Multiplier Delivery Stage."
Stage 3 (Compliance)—Estimated Credit Recapture Risk = Sum of all NMTC Credit Amounts X "Multiplier Delivery Stage" X (1 - "Multiplier Compliance Stage" X (Current Compliance Year - Years of Delivery))
Stage 4—Estimated Credit Recapture Risk = 0
Note
Multiplier Delivery Stage for NMTC = 1
The system updates the Estimated Credit Recapture Risk on the first day of each month.
The Estimated Credit Recapture Risk for STC is calculated as follows, depending on stage:
Stage 1—Estimated Credit Recapture Risk = 0
Stage 2 (Delivery)—Estimated Credit Recapture Risk = Sum of all STC Credit Amounts (from Current Credits column in Benefit Schedule screen) from the beginning to Current Month, multiplied by the "Multiplier Delivery Stage."
Stage 3 (Compliance)—Estimated Credit Recapture Risk = Sum of all STC Credit Amounts X "Multiplier Delivery Stage" X (1 - "Multiplier Compliance Stage" X (Current Compliance Year - Years of Delivery))
Stage 4—Estimated Credit Recapture Risk = 0
Note
Multiplier Delivery Stage for STC = 1/3 (or 33.33333..%)
The system updates the Estimated Credit Recapture Risk on the first day of each month.
Solar/Energy tax credits or other various tax credits are subject to recapture risks based on its full credit amounts claimed to date during the delivery period, after which point recapture risks decrease evenly to become $0 at the end of the compliance period.
The Estimated Credit Recapture Risk for Other tax credits is calculated as follows, depending on stage:
Stage 1—Estimated Credit Recapture Risk = 0
Stage 2 (Delivery)—Estimated Credit Recapture Risk = Sum of all Other Credit Amounts (from Current Credits column in Benefit Schedule screen) from the beginning to Current Month, multiplied by the "Multiplier Delivery Stage."
Stage 3 (Compliance)—Estimated Credit Recapture Risk = Sum of all Other Credit Amounts X "Multiplier Delivery Stage" X (1 - "Multiplier Compliance Stage" X (Current Compliance Year - Years of Delivery))
Stage 4—Estimated Credit Recapture Risk = 0
Note
Multiplier Delivery Stage for Other = 1
The system updates the Estimated Credit Recapture Risk on the first day of each month.