{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/323/740/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"323","topic_title":"Investments—Equity Method and Joint Ventures","subtopic":"323-740","subtopic_title":"Income Taxes—Proportional Amortization Method","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":"Proportional Amortization Method","heading":null,"paragraphs":[{"citation":"323-740-55-1","para":"55-1","html":"
This Section is an integral part of the requirements of this Subtopic.
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This Example illustrates the application of the proportional amortization method of accounting for a limited liability investment in a low-income-housing tax credit structure, which is a type of investment that may be eligible to be accounted for using the proportional amortization method.
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The following are the terms for this Example.
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This Example has the following assumptions:
  1. a
    All cash flows (except initial investment) occur at the end of each year.
  2. b
    Depreciation expense is computed, for book and tax purposes, using the straight-line method with a 27.5 year life (the same method is used for simplicity).
  3. c
    The investor made a $100,000 investment for a 5 percent limited partnership interest in the project at the beginning of the first year of eligibility for the tax credit.
  4. d
    The partnership finances the project cost of $4,000,000 with 50 percent equity and 50 percent debt.
  5. e
    The annual tax credit allocation (equal to 4 percent of the project's original cost) will be received for a period of 10 years.
  6. f
    The investor's tax rate is 40 percent.
  7. g
    The project will operate with break-even pretax cash flows including debt service during the first 15 years of operations.
  8. h
    The project's taxable loss will be equal to depreciation expense. The cumulative book loss (and thus the cumulative depreciation expense) recognized by the investor is limited to the $100,000 investment.
  9. i
    Subparagraph superseded by Accounting Standards Update No. 2014-01.
  10. j
    It is assumed that all requirements are met to retain allocable tax credits so there will be no recapture of tax credits.
  11. k
    The investor expects that the estimated residual value of the investment will be zero.
  12. l
    All of the conditions described in paragraph 323-740-25-1 are met to apply the proportional amortization method, and the entity has elected to use the proportional amortization method to account for its tax equity investments in this tax credit program in accordance with paragraph 323-740-25-4.
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An analysis of the proportional amortization method follows.
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This Example illustrates the application of the proportional amortization method for an investment that generates non-income-tax-related benefits in addition to income tax credits and other income tax benefits from a tax credit program.
","snippet":"This Example illustrates the application of the proportional amortization method for an investment that generates non-income-tax-related benefits in addition to income tax credits and other income tax benefits from a tax…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1531fe29f9ec78e2e05931f954de086e8878c9ce4c6335ff0eb80d2a4125f9ba","downloaded_from":"2026-09-09T23:41:32.886Z","last_downloaded_at":"2026-09-09T23:41:32.886Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478876","source_sha256":"7341c54d38f6a7ddd6b42a97664ac836a6616cbde37a7bdbcbd483ed6bf13652"}},{"citation":"323-740-55-12","para":"55-12","html":"
The following are the terms for this Example:
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This Example has the following assumptions:
  1. a
    All cash flows (except the initial investment) occur at the end of each year.
  2. b
    Depreciation expense is computed, for book and tax purposes, using the straight-line method with a 10-year life (the same method is used for simplicity).
  3. c
    The investor contributed $102,000, or 5 percent of the equity capital, for an interest in the limited partnership at the beginning of the first year of eligibility for the income tax credit.
  4. d
    The partnership will receive income tax credits from an income tax credit program. The income tax credits will be received over a four-year period.
  5. e
    There is no reduction of tax basis as a result of the income tax credits.
  6. f
    The investor will receive cash proceeds based on a fixed percentage of the project’s cash generated during the life of the project.
  7. g
    The investor’s tax rate is 40 percent.
  8. h
    The income tax credits are not subject to recapture.
  9. i
    The investor expects that the estimated residual investment will be nominal (zero is assumed for simplicity).
  10. j
    All of the conditions described in paragraph 323-740-25-1 are met to apply the proportional amortization method, and the entity has elected to use the proportional amortization method to account for its tax equity investments in this tax credit program in accordance with paragraph 323-740-25-4.
  11. k
    After 10 years, the investor has a right to require that the project sponsor purchase the investor’s equity interest for a nominal amount (zero is assumed for simplicity). It is assumed that the option will be exercised.
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An analysis of the proportional amortization method follows.
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