Direct equity programs allow investors to earn cash flow and tax benefits from a company issuing bonds. They are often used for real estate and alternative energy projects, and can be structured as partnerships or corporations. Recent tax laws have reduced their benefits, but they can still be a viable investment option.
A direct equity program is an investment option that allows investors to become involved in the cash flow and tax benefits associated with the company issuing the bond. Sometimes called a direct participation plan, this type of program was once considered an excellent tax shelter for investors who wanted to form some type of partnership. However, changes in tax laws in recent years have reduced the benefit of using a direct participation program to obtain significant tax advantages in some situations.
For the most part, the direct participation program is a somewhat passive investment option. An investor involved with this type of program or plan is able to earn a return based on the amount of cash flow associated with the underlying investment, which serves as the reason for creating the plan. Depending on the terms and conditions associated with the program, the investor may receive a fixed amount as long as monthly income exceeds a certain amount, or may benefit from a percentage of any net income generated by the underlying security. The investor really doesn’t need to do anything to enjoy this benefit.
It is not uncommon to see a direct participation program established to attract investors for projects such as real estate transactions. As interest in alternative energy options has increased, the direct participation program model has also been used to connect with investors who see potential in the development and implementation of products involving the harnessing of solar energy, wind energy and energy production. biofuels.
Investors who choose to participate in a direct participation program often take steps to organize themselves in some way in order to derive maximum benefit from the effort. General partnerships and limited partnerships are used to structure the program. In some cases, investors choose to use a subchapter version of an S corporation. The choice of structure is often influenced by the nature of the investment opportunity and agreement among investors that a particular form of organization will bring the greatest benefit to the partners. .
Although more recent tax laws have minimized the tax benefits that come from being involved with a direct membership program, there are still some tax breaks available with this type of plan. If investors believe that the return on investment is sufficient when combined with the other available tax breaks, there is a good chance that serious consideration of such a program is a viable option.
Asset Smart.
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