Integration, not individual incentives, is what makes complex real estate projects feasible.
Asking the right question
Developers frequently ask which tax incentive creates the greatest value that will make their project successful. In today’s market, that is rarely the right question.
Rising construction costs, higher interest rates and tighter lending standards have widened financing gaps on projects that would have been financeable only a few years ago. The projects moving forward today are not those that rely on one exceptional incentive. They are the projects whose sponsors understand how to integrate multiple incentives into a coordinated capital stack.
Key tax incentives
Each major incentive serves a different purpose. Tax-increment financing (TIF) reimburses eligible redevelopment costs through the future growth in property taxes a completed project generates. Historic tax credits (HTCs) provide equity for certified rehabilitations of income-producing buildings at least 50 years old — a 20 percent federal credit on qualified expenditures, which roughly 35 states match with their own 20 to 25 percent credit.
New Markets Tax Credits (NMTCs) deliver below-market financing for projects in distressed communities, a portion of which is forgiven after seven years. Low-Income Housing Tax Credits (LIHTCs) remain the primary source of equity for affordable housing, syndicated to investors as a 9 percent or 4 percent credit.
Opportunity Zone investment rewards patient capital, deferring tax on rolled-over capital gains and eliminating tax on appreciation when the investment is held at least 10 years.
None of these incentives were designed to solve every financing challenge. However, together they often can make a project financially feasible.
Tax incentives by the numbers
Historic Tax Credits: $8.64 billion in private investment in fiscal year 2025 — the program’s second-highest annual total on record — and $257.8 billion across more than 50,000 historic properties since 1976.
New Markets Tax Credits: approximately $91 billion in allocation authority awarded across 21 rounds since 2000, including the record $10 billion 2024–2025 round announced in December 2025.
Low-Income Housing Tax Credits: nearly 3.9 million affordable homes across more than 55,000 projects placed in service since 1987. Opportunity Zones: more than $89 billion of private investment across over 5,600 communities, now permanent under the One Big Beautiful Bill Act.
Integration creates value
The real expertise lies in understanding how these programs interact. HTCs routinely complement LIHTCs in adaptive reuse housing. HTCs and NMTCs often work well together for commercial redevelopment. Opportunity Zone equity can strengthen projects expected to appreciate over the long term.
Other combinations require careful structuring, and a few are effectively off-limits. NMTCs and LIHTCs generally do not mix unless the property is divided through a condominium structure. Cost segregation, which accelerates depreciation, can erode the benefit of a HTC deal even as it strengthens LIHTC and Opportunity Zone projects — a reminder that optimizing one incentive in isolation can quietly reduce another.
Every program introduces constraints. HTCs require compliance with preservation standards. LIHTCs impose long-term rent and income restrictions. NMTC investors evaluate both community impact and financial strength. Opportunity Zone investors operate under statutory investment timelines.
Tax credit equity is usually funded over the course of construction rather than entirely at closing — and monetized through third-party investors at roughly $0.60 to $0.95 on the dollar — creating bridge-financing needs that must be anticipated from the outset. Modeling the capital stack, structuring and syndicating the credits and sequencing applications correctly is where much of a project’s value is won or lost.
Case studies
Adams & Oak in Peoria, Illinois, illustrates the value of integration. A six-story warehouse from 1914 in the city’s Warehouse Historic District that sat underused for decades is now 94 market-rate apartments along with 12,600 square feet of ground-floor commercial space, rooftop amenities and basement parking. The $29 million adaptive reuse project combined federal and state HTCs, TIF, Opportunity Zone equity, conventional debt and private equity. No individual source closed the financing gap but together they created a viable project.
Shimer Square in Mount Carroll demonstrates a different approach. The roughly $33.4 million redevelopment of the early-1900s Shimer College campus converted three historic halls into 51 affordable and market-rate apartments, pairing 9 percent LIHTCs with federal and state HTCs, donation tax credits and local TIF. No single source could have carried the project; together they made a long-vacant campus viable again.
Parr Instrument Co. illustrates that these strategies are not limited to housing or historic redevelopment. NMTCs supplied this hi-tech manufacturing company with flexible, below-market financing that supported expansion, job creation and long-term investment while addressing a financing gap that conventional capital alone could not fill.
Plan early or lose out
The most successful projects evaluate incentives before design is finalized, financing is arranged or applications are submitted. Early structuring and financial modeling identify which programs complement one another, where conflicts exist and how construction, financing and investor timelines should be sequenced. Decisions made early often determine whether millions of dollars of potential capital remain available later.
Sponsors sometimes view incentives as interchangeable funding sources. They are not. Each has unique legal requirements, underwriting standards and compliance obligations. Optimizing one incentive without understanding its effect on another can reduce or eliminate the overall financial feasibility of the project.
How incentives reduce the need for traditional equity
Illustrative historic adaptive-reuse project — the same deal, financed with vs. without incentives
equity needed
Illustrative example for discussion — figures reflect assumed inputs, not an actual engagement. Source: Bracket Partners
Conclusion
As capital markets become more selective, sophisticated capital-stack planning has become a competitive advantage rather than a luxury. The sponsors who consistently close difficult transactions are not simply identifying available incentives. They are integrating them thoughtfully, sequencing them carefully and structuring them to complement one another.
The future of complex real estate finance belongs not to the project with the largest tax credit, but to the one with the best-designed and integrated capital stack.