New Markets Tax Credit (NMTC)
The federal government allows investors to earn tax credits in exchange for “Qualified Equity Investments” in private development projects. NMTCs can only be received for development projects located in qualified census tracts in disinvested communities.
What is a New Markets Tax Credit?
NMTC was established to help increase the flow of capital to businesses and low-income communities by providing tax incentives to private investors. The program was authorized by the Community Renewal Tax Relief Act of 2000 as part of an effort to help stimulate investment and economic development in low-income urban areas and rural communities.
How does it work?
NMTCs are not one-time grants or disbursements. Through the program, private investors receive a tax credit against their federal income of 39 percent of the total Qualified Equity Investment for investments made in businesses or other economic development projects in eligible communities. In general, the term “qualified equity investment” means any equity investment in a qualified community development entity. Community Development Entities are intermediaries that sell tax credits to the investors and in turn use the funds to make investments in qualified low-income communities.
Where can NMTC funds be used?
Where and how can it be used?
NMTC funds can be used for investments in qualified, active low-income businesses located in eligible communities. These funds can be used to finance equipment, operations, or real estate, which includes the purchase or rehabilitation of retail, manufacturing, agriculture, community facilities, rental or for-sale housing, or a combination of these. The program targets communities with census tracts where the individual poverty rate is at least 20 percent or where the median family income does not exceed 80 percent of the statewide or metropolitan area median family income.
What are its intended outcomes?
The program intends to help stimulate investment and economic development in low-income urban and rural communities by increasing the flow of capital into these areas. New Markets Tax Credits can spur development across numerous building typologies including construction/rehab of office buildings, retail businesses, manufacturing facilities, agricultural businesses, schools, hotels, shopping centers, health clinics and cultural institutions.
Actual outcomes linked to NMTC disbursements may include job creation/retention and increased average income levels. Based on federal analysis, between 2003 and 2015, $42 billion in NMTCs nationwide generated more than a million jobs, with more than 72 percent of these investments occurring in severely distressed communities (30 to 40 percent of projects would not have proceeded without NMTCs.) NMTCs are a significant contributor to affordable housing development. t.
Where NMTC investments have gone.
Total NMTC investments between 2010-2017.