Why Does My Tax Lawyer Keep Saying We Need Nonrecourse Debt for My Low-Income Housing Tax Credit Project

[...]the Partnership owning the tax-exempt bond financed building will need to find other sources of funds to make up the much lower equity the Investor will invest due to receiving $5,710,000 less LIHTC. In addition to having more debt and more minimum gain, tax-exempt bond transactions also have significantly less Investor equity. [...]the depreciation and losses on a $10,000,000 tax-exempt bond-financed building will consume the Investor's small amount of capital much more quickly than the exact same amount of losses on a building financed without tax-exempt bonds.24 Therefore the need for good Partnership Minimum Gain (described further below) is much more common in tax-exempt bond transactions. [...]the Investor can continue to receive tax losses and LIHTC even though it has exhausted its capital account and the capital account turns negative.28 Any time Minimum Gain exists, "Nonrecourse Deductions" are created equal to the amount of Minimum Gain created.29 Under Treasury Regulations Sections 1.704-2(c) and 1.704-2(j), nonrecourse deductions first consist of depreciation to the extent there is sufficient depreciation. Under Section 1001, "nonrecourse debt" refers to debt secured by property where, in the event that the borrower defaults on the debt, the lender's only recourse is against the property securing the debt. [...]a loan where a borrower under state law has recourse to all assets of a Partnership but does not have recourse to any of the partners would be recourse for purposes of Section 1001, but nonrecourse for purposes of Treasury Regulation 1.752-1(a)(2).