October 25, 2016

Enterprise Releases New Issue Brief on Tax Incentives for Impact Investments through CDFIs

Today Enterprise Community Partners and the Accelerating Impact Investing Initiative (AI3) released a new issue brief on tax incentives for impact investments through Community Development Financial Institutions (CDFIs). CDFIs are private government-certified financial institutions that serve individuals, businesses and communities that tend to be overlooked by the conventional financial system.

As a bit of background, there are currently more than 1,000 CDFIs operating in the U.S. as banks, credit unions, loan funds, microloan funds and venture capital funds. Today dozens of CDFIs raise investment capital from individual and institutional investors through fixed-income securities and promissory notes, each of which delivers a financial return alongside intentional and measurable social benefits.

Under federal law, income earned on these “impact investments” is taxed at the same rate as income earned in a savings account, certificate of deposit or corporate bond, all of which typically have no obligation or intent to produce clear social or environmental benefits. The amount of investment capital flowing to support disadvantaged individuals, businesses and communities could be greatly increased if impact investments through CDFIs carried a tax benefit. This benefit could take several forms, such as a full exemption for earned income – similar to the benefit for investments in municipal bonds – or a tax credit valued at a portion of the total investment amount.

The issue brief released today takes a close look at two such tax credits at the state level, both of which have proven effective in increasing the amount of private capital invested in underserved communities to develop affordable homes, support small businesses and create jobs:

  • The South Carolina Community Development Tax Credit Program, which offers a 33 percent credit against state tax liabilities for each dollar invested or donated to state-certified CDFIs and community development corporations.

Enterprise and the AI3, which is a cross-sector coalition working to improve and expand the market for impact investments through public policy, encourage more states to establish tax incentive programs for private investments through CDFIs. In the coming months, we will also develop a proposal for a new federal tax incentive targeting impact investment products. To jumpstart that discussion, earlier today Enterprise and the AI3 hosted a roundtable of CDFI stakeholders and other experts at the 2016 Opportunity Finance Network Conference in Atlanta to discuss what a federal impact investing tax incentive could look like and how the benefits could flow to investors.

To read the full issue brief released today, download the PDF here. To learn more about the AI3, visit our website at www.AcceleratingImpactInvesting.org.

Posted in:
Opp360 logo

For full access to our tools and resources, please provide the information below.

We use this data to better understand our users; we do not sell or share this data. By providing this information, you can expect to receive newsletters and other updates from Opportunity360.