The Power of Tax Credits for Community Banks

As a community bank, you are essential in promoting economic development and driving social impact in your local community. The Community Reinvestment Act (CRA) requires banks to invest in their communities, particularly low-income areas, by providing access to credit and financial services. Meeting CRA goals can be challenging, especially for community banks with limited resources. Fortunately, tax credits provide a unique opportunity for community banks to invest in projects that benefit their communities while also generating a financial return. This article will explore how community banks can leverage tax credits to help achieve their CRA requirements and ESG goals.

One of the most well-known tax credits available to community banking institutions is the low-income housing tax credit (LIHTC). The benefits of LIHTCs for community banks go beyond just tax savings. By investing in LIHTC projects, community banks can support affordable housing developments in their local communities, which can help improve their CRA score and meet their ESG goals. Affordable housing can attract new residents and businesses to the area, increasing economic activity and employment. In addition, investing in affordable housing can help improve local residents quality of life, which can positively impact the community.

Historic tax credits are another type of tax credit available to community banks. These credits are intended to incentivize the preservation of historic buildings and structures.

A community bank can invest in Historic Tax Credit funds, which provide equity to developers for the restoration of historic buildings that contribute to a historic district or individually listed on the national register. Renovations must meet certain State and Federal guidelines, such as preserving the historic character of the building and using materials that are consistent with the building’s original construction.

The benefits of the historical tax credit for community banks are very similar to LIHTC projects. Not only can the credit be used to offset the bank’s tax liability, but investing in historic buildings can help preserve the character and identity of a community, promoting economic development within the community and increasing tourism.

Solar investment tax credits (ITC) are a newer tax credit that can benefit community banks. These credits are designed to incentivize the installation of solar systems on commercial and residential properties.

The benefits of the solar tax credit for community banks are many. Investing in renewable energy projects, community banks can support the transition to clean energy, help combat climate change, align with ESG goals and potentially improve CRA scores.

By investing in LIHTC, HTC, and Solar projects, community banks can support affordable housing developments, historic preservation, and renewable energy. These investments can help community banks meet their ESG goals and potentially improve CRA scores by demonstrating their commitment to economic development, environmental sustainability, and community engagement.

Cabretta Capital is a specialty finance firm with expertise in structured tax credit equity, opportunity zone, and Real Estate Equity funds. Visit www.cabrettacapital.com for more information or contact Jesse Speltz at 770-545-2465.

Jesse Speltz Director of Tax Credit Investments Cabretta Capital