Impact Growth Capital Newsletter

 This week at IGC:
The "Hidden" Capital Stack: Taxes & Net Returns

Impact Growth Fund

Join Us In Solving The Affordable Housing Crisis

Own a Piece of the GP — Not Just the Fund 

For the first time, accredited investors can access General Partner economics — including a share of management fees, promote, and equity. This insider structure is typically reserved for founding partners and offers revenue-based participation. A rare, strategic opportunity to own a piece of the GP is now open.

Click here to learn more from a previous newsletter.

The Power of the "Triple Stack"

Theory is useful, but numbers tell the truth. To understand why we are so convicted about The Colorado Building, let’s look at a simplified, real-world comparison.

Most deals have one advantage. We look for the "Triple Stack": Historic Tax Credits (HTC), Tax Increment Financing (TIF), and Bonus Depreciation.

Below is the difference between buying a standard value-add office building and buying an asset where we have engineered this "Triple Stack."

For this illustration, assume a $10 Million Total Project Cost for both scenarios.

1. The Entry (Risk Reduction via HTC)

In a standard deal, every dollar of renovation comes from our pockets (Debt + Equity). In an HTC deal, the government effectively co-invests with us.

• Standard Deal: We raise $4M in equity and borrow $6M. The investors' basis (risk exposure) is fully $4M.

• The Colorado Building: Because the renovation is qualified historic work, we generate roughly $2M in Tax Credits. We use these credits to offset the capital needed.

  • Result: We control a $10M asset, but our net risk exposure is significantly lower. We have a safety buffer that standard projects lack.

2. The Operations (Cash Flow Boost via TIF)

This is where Tax Increment Financing (TIF) creates a competitive moat.

• Standard Deal: You renovate the building. The value goes up. The city reassesses the property and triples your property tax bill. This eats into your cash flow and lowers your returns.

• The Colorado Building: The taxes still go up, BUT, thanks to the TIF agreement, the city refunds the "increment" (the tax increase) back to the project for 20 years.

  • Result: Instead of vanishing into the city budget, that cash flows back into our operating account. This effectively subsidizes the building's operations, creating a higher Net Operating Income (NOI).

3. The Shield (Tax Efficiency via Bonus Depreciation)

Here is where Bonus Depreciation protects the income we just created.

• Standard Deal: You receive your quarterly distribution check. You pay ordinary income tax on it immediately.

• The Colorado Building: We utilize 100% Bonus Depreciation to accelerate the write-off of eligible improvements (fixtures, flooring, systems) into Year 1.

  • Result: This creates a significant "paper loss" on your K-1 statement in the first year even while the building is cash flowing.

  • The Payoff: You can likely receive your cash distributions from the TIF-boosted operations tax-free until your paper losses are exhausted.

The "Triple Stack" Side-by-Side

The Bottom Line

Most investors look at a building and see bricks and glass. We look at the Capital Stack Efficiency.

By layering Historic Tax Credits to lower our entry price, using TIF to boost our ongoing cash flow, and applying Bonus Depreciation to shield that income from taxes, we manufacture a return profile that is superior to a standard acquisition.

This is what we mean by "protecting the downside." We aren't just buying better real estate; we are buying it with better math.

Would you like to walk through a sample K-1 calculation to see how the Bonus Depreciation loss would apply to your specific investment amount?

Jesse Sells
Founder | Impact Growth Capital

Schedule a Conversation with me

Capital stack efficiency works best when personalized to your specific investment, income, and tax situation.

If you’d like to see how the “Triple Stack” strategy Historic Tax Credits, TIF, and Bonus Depreciation can impact your potential K-1, cash flow, and downside protection, you can schedule time directly with me below.