New Markets Tax Credit (NMTC)
A federal incentive that attracts private investment to distressed communities — delivering a 39% credit to investors over seven years.
The New Markets Tax Credit (NMTC) incentivizes community development and economic growth by attracting investment to distressed communities. Individual and corporate investors who make Qualified Equity Investments (QEIs) in specialized financial intermediaries called Community Development Entities (CDEs) receive a tax credit against their federal income tax. CDEs, in turn, use the proceeds to make Qualified Low-Income Community Investments (QLICIs) — such as business loans — in low-income communities.
The Value of NMTC
The NMTC is taken over a 7-year period and equals 39% of the original amount invested in the CDE — 5% of the investment in each of the first three years, and 6% in each of the final four years.
Example of Benefits
- The CDFI Fund awards a $10 million tax credit allocation to a CDE.
- The CDE offers the credit to a single investor for a $10 million equity investment.
- Generates a $500,000 credit annually for the first three years.
- Generates a $600,000 credit annually for the final four years.
- Total credit value over 7 years: $3,900,000.
What Is a Low-Income Community?
The NMTC Program provides an incentive for investment in “Low-Income Communities” (LICs):
- Where the poverty rate is at least 20%; or
- Where median family income does not exceed 80% of the area median; or
- Where median family income does not exceed 85% of the area median in a high-migration rural county; or
- Where the census tract has a population under 2,000, sits within a Federally designated Empowerment Zone, and is contiguous to at least one other Low-Income Community.
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