Why should I buy a tax credit?
Ordinarily, one dollar of state tax credit offsets one dollar of state tax liability. Because tax credits sell at a discount (i.e., buyers typically purchase a dollar of tax credit for less than a dollar), you can save money on your Federal income taxes.
How much will I spend for a tax credit?
The cost of tax credits cannot be predicted with precision especially in the current absence of tax credit sales at the Federal level. In addition, particular tax credits attributes may effect pricing (e.g., it is expected that Production Tax Credits will sell for higher pricing than Investment Tax Credits, etc.).
Can tax credits I buy be carried over to the following year if I don’t use them all?
Yes, provided that the credit has a sufficient carry forward period. Such determinations should be made by qualified tax professionals.
If I buy a tax credit and decide not to use it, can I later sell it?
There are statutory prohibitions against multiple transfers and the forthcoming Treasury Regulations will have impact on this issue.
What types of taxes can I use the tax credit to pay?
The Federal Transferable Tax Credits offset income tax liability (both corporate and personal). Such determinations should be made by qualified tax professionals.
If I buy a tax credit at a discount from its face value and claim it on my tax return, do I recognize tax gain recognized for federal income tax purposes?
No. The Treasury Regulations make clear that the economic benefit associated with purchasing tax credits at a discount is excluded from the buyer’s calculation of its gross income.
Are there claiming issues in purchasing tax credits from a timing standpoint?
Yes. The buyer needs to be very aware of several rules, including timing rules associated with its purchase of tax credits especially where calendar and fiscal year taxpayers are trading tax credits between each other.
Can I buy a tax credit seller’s depreciation too?
No. Depreciation is not transferable under Section 6418.