What Is New Market Tax Credit?


  • The New Markets Tax Credit (NMTC) was designed to increase the flow of capital to businesses and low income communities by providing a modest tax incentive to private investors.

How are new market tax credits calculated?

Investors can claim their allotted tax credits in as little as seven years— 5 percent of the investment for each of the first three years and 6 percent of the project for the remaining four years—for a total of 39 percent of the NMTC project. A CDE can be its own investor or find an outside investor.

Who buys new market tax credits?

Most investors in NMTC tax credits are banks and other financial institutions, but any person or entity may purchase them. New Market Tax Credits amount to 39% of the amount invested over seven years.

How do you qualify for NMTC?

Basic eligibility for NMTC requires a development to be in a census tract with income at or lower than 80 percent area median income, or poverty to be greater than 20 percent.

Can new market tax credits be used for housing?

NMTCs cannot be directly mixed with Low Income Housing Tax Credits (LIHTCs), but they can be used in the same project by utilizing a “condominium structure,” i.e. by legally separating the commercial and multifamily parts of a building into two distinct ownership entities.

How does a CDE make money?

The CDE, if not affiliated with the tax credit investor, will earn fees from the use of its allocation and management of the selected investments.

What is the rehabilitation credit?

Rehabilitation Credit The credit is a percentage of expenditures for the rehabilitation of qualifying buildings in the year the property is placed in service. Requires taxpayers take the 20-percent credit ratably over five years instead of in the year they placed the building into service.

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What do CDFIs do?

Community development financial institutions (CDFIs) are private financial institutions that are 100% dedicated to delivering responsible, affordable lending to help low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream.

What is Nmtc zone?

New Markets Tax Credit (NMTC) eligibility and designated Qualified Opportunity Zones (OZ) are both federal tax incentive programs meant to encourage private capital investment in distressed areas throughout the country. The layer is available in the Federal Guidelines menu and is called “NMTC and QOZ Status”.

What can Nmtc be used for?

The NMTC Program attracts private capital into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities (CDEs).

What is an NMTC qualified tract?

List of NMTC-Eligible Census Tracts Located in Non-Metropolitan Counties. The CDFI Fund says these census tracts qualify for NMTC investments because they have a poverty rate of at least 20 percent and/or a median family income that is at or below 80 percent of the applicable area median family income.

What is Nmtc qualified?

The NMTC program provides these investors with federal income tax credits based on equity investments made in CDF’s subsidiaries. This investment is known as a Qualified Equity Investment (QEI). Investors receive a tax credit for 39% of a QEI, which is claimed over a seven‐year schedule.

What is a historic tax credit?

The federal historic rehabilitation tax credit (HTC) program is an indirect federal subsidy to finance the rehabilitation of historic buildings with a 20 percent tax credit for qualified expenditures.

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What is a community development entity?

A Community Development Entity (CDE) is a domestic corporation or partnership that is an intermediary vehicle for the provision of loans, investments, or financial counseling in low-income communities.

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