New Regulations Affect Historic Tax Credit and Energy Tax Credit Transactions

    View Author July 2016

    New Temporary and Proposed Regulations, scheduled to be published in the Federal Register July 22, 2016, detail the tax treatment of so-called “50(d) income” when an Historic Tax Credit or Energy Tax Credit (or certain other less common investment tax credits) is “passed through” to a lessee. The new regulations have been anticipated for over two years.

    Highlights of the new regulations are as follows:

    • The regulations apply to property placed in service on or after September 19, 2016. While superficially this would seem to effectively grandfather existing transactions (including transactions where the project can be completed and placed in service by September 18, 2016), the background discussion in the preamble and some examples in the regulations indicate that the IRS apparently intends to apply the new rules to all transactions.
    • 50(d) income is taken into account directly by partners in a lessee partnership, and thus there is no stepped-up basis in the partnership interest resulting from the income.
    • On an exit from a lessee partnership following the recapture period, a partner may, but is not required to, elect to accelerate the remaining 50(d) income.