CT|KDF

New Markets Tax Credit Program Background

The New Markets Tax Credit (NMTC) Program was enacted on December 21, 2000 as part of the Community Renewal Tax Relief Act of 2000. Under this program, the U.S. Treasury provides a credit against Federal income taxes for investors that make Qualified Equity Investments (QEIs) into Community Development Entities (CDEs). From the proceeds of these investments (to equal 39% of the original investment), CDEs are empowered to make Qualified Low-Income Community Investments in business and real estate projects in Low-Income Communities (LICs).

New Markets Tax Credit

Taken over a seven year period, at a credit rate of:

• 5% of the original investment amount in each of the first three years.
• 6% of the original investment amount in each of the final four years.

LICs defined:

• Having at least a 20% poverty rate or
• Having a median family income not exceeding 80% of the area median family income or
• Having a population of less than 2,000, containment within a Federally designated Empowerment Zone and contiguous to at least one other LIC; or
• Having a median family income not exceeding 85% of the area median family income, provided the census tract is located in a high migration rural community.

Typical Qualified Low Income Business (QALICB):

• An operating business located in an LIC.
• A business that develops or rehabilitates commercial, industrial, retail and mixed-use real estate projects in a LIC.
• A business that develops or rehabilitates community facilities, such as charter schools or health care centers, in a LIC.
• A business not disqualified by deriving 80% or more of gross rental income from renting dwelling units or as an ineligible business type (ex: golf course, race track, gambling facility, certain farming businesses, country club, massage parlor, hot tub or suntan facility, or store where the principal business is the sale of alcoholic beverages for consumption off premises.)

Program Model & Charts

Taken over a seven-year period at a rate of 5% to 6% (for a total value of 39% of the original investment) the NMTC delivers advantages to all participating parties. When a CDE receives a Fund allocation of $1 million, for example, it can turn over the credit to a single investor in exchange for a $1 million equity investment. The investor can then claim a credit on their Federal taxes according to the following schedule:

Since its inception, the US Treasury Department has allocated $33 billion through substantial annual awards