New Market Tax Credit Explained

The New Market Tax Credit is a program designed to encourage investment in low-income communities by offering a tax credit to investors. This credit can be worth up to 39% of the investment.

Investors can earn this credit by investing in Community Development Entities (CDEs), which are organizations that finance businesses and projects in low-income areas. The CDEs use the investment to provide financing for these businesses and projects.

To be eligible for the New Market Tax Credit, a project must be located in a low-income community, as defined by the U.S. Department of the Treasury. This means that the area must have a high percentage of residents living below the poverty line.

The tax credit is allocated to CDEs through a competitive application process, where the Treasury Department awards credits to the most qualified applicants. The amount of credit awarded is based on the amount of investment made by the CDE.

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The New Market Tax Credit (NMTC) is a government program that aims to stimulate economic growth in low-income communities by providing tax credits to private investors.

The NMTC program was enacted by the Nevada Legislature in 2013, and it's similar to the federal New Markets Tax Credit Program. The program allows private investors to receive a tax credit against their federal income tax in exchange for making equity investments in Community Development Entities (CDEs).

These CDEs are specialized financial intermediaries that are certified by the U.S. Department of the Treasury. They're allocated federal tax credits to incentivize private capital to invest in ventures in distressed or disadvantaged communities.

The tax credit totals 39% of the original investment amount and is claimed over a period of seven years. This means that if an investor puts in $100,000, they'll receive a tax credit of $39,000.

The funding available through the NMTC program varies, but in 2024, the U.S. Treasury allocated an additional $5 billion in investment authority to 104 CDEs. In Nevada, the state legislature approved $170 million in investment authority for qualified equity investments and $30 million for impact qualified equity investments.

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Here's a breakdown of the funding available through the NMTC program:

The NMTC program has a proven track record of success, with over $130 million in allocation awards made to the Empire State New Market Corporation in New York State.

The New Market Tax Credit program is a powerful tool for investing in low-income communities. It provides a tax credit of up to 39% of the investment amount.

To qualify, investments must be made in Community Development Entities (CDEs) that have a minimum of 50% of their assets invested in low-income communities. These CDEs are responsible for making investments in businesses and projects that create jobs and stimulate economic growth in these areas.

Investments can be made in a variety of assets, including real estate, businesses, and infrastructure projects.

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The CDFI Fund offers a range of tools and resources to support its mission of promoting economic growth and development in distressed communities.

The New Markets Tax Credit (NMTC) Program provides a tax credit of up to 39% of the investment made in qualified low-income community investments.

CDFI Fund's website features an online application system that allows applicants to submit their applications and supporting documents electronically.

The CDFI Fund also provides a variety of educational resources, including webinars, training sessions, and online tutorials, to help applicants navigate the application process.

The CDFI Fund's online database, the CDFI Fund's Directory, lists all certified CDFIs and their contact information, making it easier for applicants to find and connect with potential partners.

The CDFI Fund's website also features a section dedicated to frequently asked questions (FAQs) that addresses common questions and concerns about the application process and program requirements.

The New Markets Tax Credit (NMTC) program is quite flexible when it comes to project type and purpose.

QALICBs can be used to finance equipment, operations, or real estate. Real estate financing can purchase or rehabilitate retail, manufacturing, agriculture, community facilities, rental or for-sale housing, or combinations of these.

Manufacturing and food processing, retail, health care, schools and child care, and office and professional services are the most prevalent project types, making up a significant portion of NMTC-funded projects.

The Urban Institute categorized NMTC project types, and while no single type dominates, these top project types are consistently funded through the program.

NMTC funding can be used to support a wide range of community facilities, including health services, museums, and charter schools.

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The New Markets Tax Credit program is outlined in Section 45D of the Internal Revenue Code, a non-permanent program that requires renewal during each session of Congress.

Unlike other tax credit programs, the New Markets Tax Credit program has not been made a permanent part of the Internal Revenue Code, which means it needs to be renewed periodically.

The program expired on December 31, 2011, along with several dozen of the so-called "tax extenders", but it was retroactively renewed in H.R. 8, the American Taxpayer Relief Act of 2012, for another 2 years until January 2014.

U.S. Senators Jay Rockefeller and Roy Blunt introduced a bill to permanently add New Market Tax Credits to the Internal Revenue Code in June 2013, but the program expired in January 2014 without the bill passing.

The New Markets Tax Credit program has been extended several times, with over 5,400 businesses financed as of the end of FY 2016, according to the CDFI.

To qualify for New Market Tax Credits, a business must meet the definition of a "Qualified Active Low-Income Community Business" and invest in census tracts that meet the definition of "higher distress." This means approximately 50% of its financing activities must be in non-metropolitan counties.

Borrowers must also operate businesses seeking growth capital for equipment, inventory, and other needs, and the business or non-profit owner-occupied facilities must be located in a qualified census tract. Commercial or mixed-use real estate projects are also eligible.

To determine if your site is located in a qualified census tract, access the CDFI Fund's website page that helps determine if your location qualifies for NMTCs. Sites located in non-metropolitan census tracts must have a median family income of less than 80% and a poverty rate of greater than 20%.

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Sites in metropolitan areas must meet one of the primary criteria, such as a median family income of less than 60%, or two of the secondary criteria, including a poverty rate greater than 25% or unemployment rates at least 1.25 times the national average.

Businesses cannot engage in certain activities, including massage parlors, hot tub facilities, and country clubs. They must also generate less than 15% of their revenue through retail or housing rental.

To apply, visit the CDFI Fund Address Qualification website to determine if the project is located in a qualifying low-income community. If it is, your local ESD Regional Office will screen potential projects for suitability. You'll also need to download and fill out the NMTC Intake Form.

Here are the eligibility criteria for Nevada NMJA funding:

The New Markets Tax Credit (NMTC) program has a unique allocation structure that's worth understanding. As of 2010, there had been eight allocation rounds, with the CDFI fund awarding the allocation authority pool to 99 CDEs chosen from 250 applicants.

The program has undergone significant growth since its inception, with 16 rounds of allocations resulting in a total award amount of over $60 billion by 2021. The total allocation for each round varies, ranging from $2.5 billion to $7 billion.

Here's a breakdown of the allocation rounds:

The New Markets Tax Credit (NMTC) program has a structured approach to allocating funds to community development entities (CDEs). As of 2010, there had been eight NMTC allocation rounds.

A key aspect of the allocation process is the timing of awards. Allocation awards for a prior round are typically made within the first quarter of the calendar year after a round.

Here's a breakdown of the allocation rounds:

By 2021, there have been 16 rounds of allocations, with a total award amount of over $60 billion.

The Nevada New Markets Jobs Act (NMJA) program is a public-private partnership that aims to attract private investment to economically distressed areas of the state.

Enacted by the Nevada Legislature in 2013, this program is a state-level version of the federal New Markets Tax Credit (NMTC) Program, with the goal of creating jobs and stimulating economic growth in underserved or disadvantaged communities.

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The program allows insurance companies to receive a credit against Nevada's insurance premium tax in exchange for investing in a Community Development Entity (CDE) or similar entity authorized by statute.

This CDE must use the investment to make capital or equity investments in Nevada businesses that satisfy certain criteria related to conducting business in a low-income community.

The businesses receiving the investment do not receive tax credits, but they do receive favorable terms and potential benefits that help their business acquire the necessary cash to thrive and grow in otherwise challenging locations.

The funding currently available to organizations in Nevada includes:

The $170 million in investment authority for qualified equity investments is intended to fund projects requiring from $300,000 to $3 million and up, while the $30 million in investment authority for impact qualified equity investments is intended to fund manufacturing, retail trade, or minority-owned projects requiring smaller amounts of capital.

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The New Market Tax Credit (NMTC) investment has a significant impact on low-income communities. It provides a 39% tax credit for investments made in Community Development Entities (CDEs).

NMTC investments are typically made in combination with other funding sources, such as debt or grants. This blended finance approach helps to leverage additional capital and increase the overall impact of the investment.

The NMTC program has a long history, dating back to 2000. It was created to encourage investment in low-income communities by providing a tax credit incentive.

CDEs use NMTC investments to support a wide range of projects, including affordable housing, healthcare facilities, and small businesses. These projects often have a significant social impact, improving the quality of life for residents in low-income communities.

NMTC investments can be made in a variety of asset classes, including real estate, small businesses, and social enterprises. This flexibility allows CDEs to tailor their investment strategies to meet the specific needs of their communities.

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Community development entities (CDEs) are the intermediaries that initiate New Market Tax Credit (NMTC) projects. They apply to the Treasury Department's Community Development Financial Institutions (CDFI) Fund to receive tax credit authority.

CDEs sell these tax credits to investors and use the funds to make debt or equity investments in entities located in qualified low-income communities. They are encouraged to make deals and offer preferential rates and terms.

Many enterprises, including banks, developers, and local governments, can qualify to become CDEs. CDFIs and other mission lenders were awarded the highest share of NMTCs.

Government and quasi-government CDEs received the third-highest share of NMTCs, followed by operating nonprofits and for-profits.

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