Benefits of investing in certified Community Development Corporations
Contributions to a CDC or CDFI can be made as donations or investments and qualify for the community development tax credit, and may also qualify for the federal and state income tax deduction for donations to charitable organizations. The community development tax credit significantly reduces the effective cost of making a donation to a CDC or CDFI. The community development tax credit allows a donor to potentially earn an attractive rate of return on an investment in a CDC or CDFI. The following examples illustrate the differences between a donation to a charitable organization, a donation to a CDC or CDFI, and an investment in a CDC or CDFI. (Source: McNair Attorneys: Tax Law Insights, October 22, 2015, “SC Community Development Tax Credits”)
Steve donates $100 to a charitable organization. Donations to charitable organizations are generally deductible for federal income tax purposes. Since South Carolina generally follows federal income tax, a federal income tax deduction also has the effect of reducing South Carolina taxable income. Assuming Steve is in the 39.6% federal tax bracket and 7% South Carolina tax bracket, the donation to the charitable organization reduces income his taxes by $46.60. The effective cost of the donation to John is only $53.40.
Steve donates $100 to a certified CDC or CDFI. The donation should again qualify for the federal income tax deduction for donations to a charitable organization. If the donation is made to a CDC, Steve can also claim a deduction for South Carolina income tax purposes. If the donation is made to a CDFI, Steve cannot claim a deduction for South Carolina income tax purposes. In both cases, Steve can claim the 33% community development tax credit. Assuming Steve is in the 39.6% federal tax bracket and 7% South Carolina tax bracket, a donation to a CDC reduces his income taxes by $46.60 and he is able to claim a $33 community development tax credit, making the effective cost of his donation $20.40 ($100 donation minus $46.60 income tax savings minus $33 credit). A donation to a CDFI reduces his income taxes by $39.60 and he is able to claim a $33 community development tax credit, making the effective cost of his donation $27.40 ($100 donation minus $39.60 income tax savings minus $33 credit).
Steve agrees to loan a CDC or CDFI $100 for five years, with principal due in a single payment at loan maturity. The CDC or CDFI agrees to pay Steve 2% interest on the loaned funds. Steve cannot claim a federal or state income tax deduction because he has not made a qualifying donation. Steve can claim a $33 community development tax credit in the year the funds are loaned to the CDC or CDFI, reducing the effective cost of his investment to $67 ($100 loan minus $33 credit). Steve will receive $10 of interest ($2 per year for five years) and a return of his $100 loan after five years. The annualized return is greater than 10% ($67 net investment cost and $110 return over five years).
PHASE 1 (CLEANUP): Identify pollutants, remove pollutants and waste, implement recycling initiatives
PHASE 2 (REMEDIATION): Certify that pollutants are removed, verify that sites are secured with no leaks or dangers to environment or community, develop and enrich the community
PHASE 3 (REUSE): Housing initiatives, healthcare initiatives, job creation, economic development initiatives, community educational initiatives
PHASE 4 (SUSTAINABILITY): Secure partnerships for the present and future, secure funding and resources, leverage all assets