The year 2023 brought significant developments in tax credit policy through legislative actions, regulatory guidance, and implementation of previously enacted provisions affecting economic development incentives nationwide. Understanding the 2023 tax credit legislative changes proves essential for developers structuring projects, investors evaluating opportunities, Community Development Entities (CDEs) managing allocations, and communities pursuing revitalization strategies. While 2023 did not witness comprehensive tax reform, targeted modifications, continued implementation of the Inflation Reduction Act, New Markets Tax Credit (NMTC) allocation announcements, and administrative improvements collectively shaped the operating environment for tax credit utilization.
Inflation Reduction Act Implementation: Year One in Practice
The 2023 tax credit legislative changes primarily involved implementing the transformative Inflation Reduction Act as projects began leveraging enhanced Investment Tax Credits (ITC), Production Tax Credits (PTC), and revolutionary transferability provisions. The 30 percent ITC for solar projects meeting prevailing wage and apprenticeship requirements became an operational reality, with thousands of projects claiming enhanced credits compared to the 26 percent available previously.
Credit transferability revolutionized renewable energy finance during 2023, creating liquid markets where project owners sold credits to purchasers with tax liability. Initial transfer transactions established market pricing conventions, with credits trading at 88 to 95 cents per dollar depending on project characteristics. The emergence of transfer intermediaries and marketplaces created infrastructure supporting efficient transactions.
The Treasury Department and IRS issued guidance throughout 2023 addressing technical questions regarding transfer mechanics, purchaser due diligence requirements, recapture provisions, and documentation standards. These administrative developments provided operational certainty, enabling broader market participation and increased transaction volume.
NMTC Allocation Round Results and Program Status
The Community Development Financial Institutions (CDFI) Fund announced 2023 NMTC allocation awards in June 2023, representing critical developments affecting which CDEs received authority to deploy credits. The allocation round awarded $5 billion in NMTC authority to 104 Community Development Entities from an applicant pool exceeding 200 organizations requesting over $15 billion—demonstrating persistent excess demand.
First-time CDE awardees represented approximately 15 percent of the recipients, reflecting the CDFI Fund’s priorities of supporting new market entrants alongside established organizations. Geographic diversity in awardee locations addressed concerns that NMTC deployment concentrated excessively in major metropolitan areas, with enhanced rural representation among 2023 awardees.
The 2023 allocation maintained the $5 billion annual amount without increases despite advocacy for $7 to $10 billion. Legislative proposals introduced during 2023 sought allocation increases and program permanence, though none advanced to enactment. Compliance guidance issued during 2023 addressed common questions about substantially all requirements, qualified business determinations, and census tract qualification, reducing transaction uncertainty.
LIHTC Enhancements and Affordable Housing Priorities
Low-Income Housing Tax Credits (LIHTC) experienced changes through increased per-capita allocations and refined Qualified Allocation Plan (QAP) priorities. The 2023 per-capita allocation amount reached approximately $2.85, adjusted for inflation, representing a modest increase from 2022 levels, which enables states to support additional housing production.
Several states revised QAPs during 2023, reflecting state-level priorities. Enhanced scoring for projects serving extremely low-income households, priorities for permanent supportive housing addressing homelessness, preferences for transit-oriented development, and climate resilience requirements represented common 2023 QAP themes.
IRS revenue procedures addressed technical LIHTC questions, including clarifications on income averaging calculation methodologies, standard area allocation rules, tenant income certification documentation requirements, and post-year 15 monitoring provisions.
State Tax Credit Expansions and Modifications
Significant changes occurred at the state level as legislatures expanded existing programs or created new incentives. Connecticut enacted substantial enhancements to its historic tax credit, increasing credit percentages and expanding eligible project types, thereby positioning the state among the most generous historic credit programs nationally.
Kansas established a new state New Markets Tax Credit program through 2023 legislation, providing 39 percent state tax credits over seven years, mirroring the federal NMTC structure. This program expanded Kansas’s economic development toolkit and enabled combined federal-state credit deployments exceeding 75 percent for qualifying projects.
Colorado expanded its state NMTC program allocation through legislative action, doubling annual available credits from $7 million to $14 million, responding to excess demand. Several states modified angel investor tax credit programs, with Utah and Maine enhancing credit percentages or expanding eligibility criteria, encouraging early-stage business investment.
Administrative and Compliance Improvements
The 2023 tax credit legislative changes encompassed administrative improvements, enhancing efficiency and reducing compliance burden. The CDFI Fund implemented upgraded online application and reporting systems for NMTC, providing improved user interfaces, automated error checking, and enhanced status tracking.
The IRS expanded electronic filing requirements in 2023 for various tax credit forms that previously required paper submissions, thereby accelerating processing and reducing errors common with manual, paper-based systems. Standardized impact reporting frameworks emerged as CDEs, state housing agencies, and preservation organizations collaborated on consistent metrics.
Strategic Implications for Stakeholders
Understanding the 2023 tax credit legislative changes enables stakeholders to optimize strategies for the current environment. Developers should incorporate renewable energy transferability into project planning, recognizing new financing options created by the Inflation Reduction Act provisions. Investors must stay current on pricing conventions and market practices evolving in transfer credit markets.
CDFIs should review allocation strategies in consideration of CDFI Fund priorities for addressing persistent poverty, rural communities, and tribal lands. Projects that align with these emphases gain a competitive advantage during allocation applications. Housing developers must understand state-specific QAP priorities guiding LIHTC allocation decisions, tailoring projects to scoring criteria, and maximizing award probability.
Looking Ahead
Numerous proposals introduced during 2023 provide a preview of potential future developments. NMTC permanence legislation gained additional co-sponsors reflecting growing bipartisan support. LIHTC expansion proposals sought 50 percent allocation increases addressing documented housing shortages nationwide. Enhanced renewable energy credit bonuses for additional categories gained advocacy support.
These proposed changes demonstrate continued policy interest in tax credit expansion, suggesting that future years, when political conditions enable primary legislation, may bring substantial enhancements to current program structures. Stakeholders benefit from monitoring legislative proposals, positioning projects to capitalize on anticipated changes while maintaining flexibility.
Conclusion
The 2023 tax credit legislative changes encompassed diverse developments spanning renewable energy credit implementation, NMTC allocation announcements, LIHTC enhancements, state program expansions, and administrative improvements shaping program utilization. While 2023 did not bring comprehensive tax reform, incremental changes and continued implementation of prior reforms significantly affected how stakeholders leverage tax credits for economic development, affordable housing production, historic preservation, and clean energy deployment nationwide.