SC angel investor tax credit – a sellers FAQ
If you made an investment in a qualified South Carolina company and received an angel investor tax credit but don’t have any South Carolina income tax liability you can sell your credit. This FAQ explains how.
We are not tax advisors or giving tax advice: consult your own advisors and don’t rely on “experts” like us before you do anything with a tax credit! And read the last question below.
I can sell a SC angel investor tax credit? Yes.
Why would I do that? To turn an asset that is currently worth nothing into cash.
Give me an example. Say you were awarded a $3,000 credit for an investment you made last year. If you don’t have a South Carolina income tax liability, the credit is useless for you. But you can sell it. Let’s say someone would give you 85 cents on the dollar of face value: you get $2,550 in cash. You could use that to buy an annual membership in an angel group.
How do I know if I have a credit? You should have received a note of an award from the Department of Revenue in February of the previous year. (If you’re a member of a VentureSouth group, the credit was on your SC K-1 from the investment entity.)
How much can I sell? As much or as little as you want. You don’t have to sell it all at once.
This sounds difficult. How do I learn more? It isn’t. We have helped many people (both our members and others) buy and sell credits, and are happy to help you too. Start with our guide and if that’s not enough, contact us.
I’ve had the credit for a few years. Is it too late to sell? No. A buyer can use your credit for up to 10 years from when the original investment was made.
How do I find a buyer? Contact us and we’ll help you.
What impact does selling the credit have on my original investment? None whatsoever. If you invested $10,000 in a company, it is still worth $10,000 regardless of whether you buy, sell, use, or forget about the credit.
Some “extra credit” questions:
What if I already used some of the credit? You can sell whatever you have left.
What happens when my original investment pays out? The credit is subject to some “recapture” if the investment makes a payout. The rules on that are complicated, but they are not impacted if you sell the credit.
This is all too good to be true. What’s the catch?
(1) There’s some paperwork and it’s an illiquid market so there will be some expenses along the way.
(2) If the Department of Revenue invalidates the original credit, the buyer will have recourse against you as the seller. Use good transfer documents and keep good records.
(3) Once you sell the credit, you can’t get it back – even if you get a SC income tax liability in the future.
(4) There may be capital gains to pay for selling a “tax credit asset,” or other implications. Ask your tax advisor for a full run-down before you buy or sell a credit.