The New Markets Tax Credit (NTMC) Program is a federal program that incentivizes capital investment in eligible low-income communities by providing private investors with a federal tax credit.
The US Department of Treasury through the Community Development Financial Institution (CDFI) Fund allocates tax credits to Community Development Entities (CDEs). CDEs are financial intermediaries which use private capital from individual and corporate investors along with other financing sources to make loans or investments to qualified businesses in eligible communities. CDEs offer these tax credits to private investors in exchange for equity in the CDE. The credit received is 39 percent of the NMTC project and is claimed over a seven-year period. NMTCs may be paired with other federal tax credits and incentives.
The NMTC Program was extended through 2025 with a $5 billion annual appropriation for tax credits. Legislation has been introduced to provide an indefinite extension.
Who benefits?
All players in the deal will benefit:
- Investors in NMTC transactions can increase their tax benefit by grouping borrowed funds with their cash investments to receive tax credits on the full amount of their investment. Return on investment in leveraged projects is significantly higher than unleveraged projects, with some projects returning a credit dollar for every $.80 of capital invested. Both individual and corporate investors with tax liabilities can use these credits.
- Businesses can access financing that is flexible and affordable. Funding is received in the form of equity and loans, often at more favorable rates and terms than market, with the potential for partial debt forgiveness, up to 25 percent or more of the amount borrowed, at the end of the NMTC period.
- The community benefits from the investment in local businesses and development. Investment decisions are made at the community level.
Who qualifies?
The program supports a diverse and wide range of projects. Both for-profit and nonprofit qualified active low-income community businesses (QALICB) are eligible for the program. NMTC recipients (QALICBs) include entities in manufacturing, technology, retail, mixed-use, hospitality, commercial real estate, schools, and healthcare. The proceeds can be used by the QALICB to finance equipment, operations, or real estate. Most businesses located in a low-income community qualify; ineligible businesses include residential real estate, golf courses, racetracks, gambling, liquor stores and farms.
The increased government support creates opportunities for businesses and projects looking for funding. Bonadio has experience with all types and sizes of projects and can assist with the complex issues arising in potential transaction structuring and pairing of projects with tax equity investors, ensuring that maximum benefits are received from this program.
If you would like to learn more about the NMTC Program or need assistance to facilitate projects looking to utilize various funding sources along with tax credits and incentives, please contact us.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.