What are NMTCs?
The New Markets Tax Credit (NMTC) Program was established by Congress in 2000 to spur investments into operating businesses and real estate projects located in low-income communities. The program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs).
The investor receives a credit totaling 39 percent of the cost of the investment. Within the Treasury Department, the Community Development Financial Institutions Fund (CDFI Fund) and the Internal Revenue Service jointly administer the program.
Since its inception in 2000 the program has raised more than $ 31 billion in private capital, leveraging about $8 of private capital for every $1 of NMTC investment in distressed communities.
How do they work?
- The CDFI Fund allocates NMTCs to Community Development Entities (CDEs) through a competitive application process.
- CDEs then determine which projects receive allocations of the NMTCs. CDEs receive Qualified Equity Investments from investors, then use the Qualified Equity Investments to make a loan or equity investment in the project or business.
- Investors receive a tax credit in the amount of 39% of the QEI over the seven-year compliance term.
- Developers and business owners can use the funds for a variety of purposes, but often it is to build or rehabilitate real estate projects that generate economic development.
- Investments must be made in low income and distressed communities.
Bankers and corporate investors seeking more information on the NMTC program should refer to this OCC publication.