If you invest in real estate that’s rented to low-income tenants, you can qualify for tax credits. Tax credits reduce your tax bill dollar-for-dollar, so they’re better than tax deductions. Many brokers and financial planners offer low-income housing partnerships.
Most deals are structured to provide investors with tax credits around 10 percent, each year for 10 years. Say you invest $20,000 in a low-income-housing partnership. Once the properties are all rented to qualified tenants, you might get a $2,000 (10 percent) tax credit that year. You’ll get these credits until you have received ten years’ worth, or approximately $20,000 in tax credits.
Therefore, you can expect to just about break even from the tax savings alone, in a low-income-housing deal. Any additional money you receive, from sale of the properties, will be profits. Thus, these investments offer the potential for real estate gains with limited risk of loss.
Before you invest, screen the sponsor carefully: look for evidence that partners in prior deals have received satisfactory returns.
