Let’s get into the specifics of the New Markets Tax Credit (NMTC) program. Straight away, I want to say that it would be a mistake to assume that participating in this program is an act of charity. It’s not.
The NMTC is a chance for businesses to expand into the same areas that, over the last twenty years, have proved to be lucrative new territory for investment.
As younger generations are forced out of urban centers to find affordable housing, they’ve brought art, culture, and entertainment, and folks with disposable income have followed. Whoever moves first wins.
So, if you’re looking to expand your business, find new customers, and get a check from the government for your efforts, give this article a read.
When will new market tax credits be available in 2024?
The announcement date for 2024 is slated to be released this coming fall, so let’s get you acquainted and prepared to take advantage of this program in the new year.
What is the New Markets Tax Credit program?
Rooted in community development, the New Markets Tax Credit, or NMTC, program was established in 2000 under the Community Renewal Tax Relief Act¹. Its primary mission is to encourage investment in economically distressed communities.
NMTCs attract private investment to distressed communities.
As of the end of fiscal year 2021, the NMTC program has
- Generated eight times more in private investment than federal funding;
- Built 239 million square feet of business infrastructure; and
- Financed nearly 11,000 businesses.
The New Markets Tax Credit is more than an incentive.
Targeting specific areas², the program aims to do the following:
- Reduce economic disparity by focusing on communities with high poverty rates or incomes less than 80% of the area’s median.
- Stimulate growth by encouraging investments that drive economic development and job creation.
- Enhance community facilities by supporting projects that improve local infrastructure and services.
How do New Markets Tax Credits work?
With the spotlight on Community Development Entities (CDEs) and Community Development Financial Institutions (CDFIs), NMTC Investments must be channeled through qualifying entities certified for this purpose. On top of that, projects must fit criteria that align with the NMTC program’s community development goals.
The Community Development Financial Institution Fund (CDFI fund) was established in 1994 with the purpose of promoting economic revitalization in low-income communities (LICs) through investment capital. The funds now support over 1,000 CDFIs from credit unions, banks, microloan funds, or other community funding sources.
Here’s how your business can apply.
Your business can apply for a new markets tax credit loan by becoming certified as a CDE. Your business must submit an application³ that demonstrates your business
- Is a legal entity;
- Has an established mission of serving low-income communities; and
- Can maintain accountability to the residents of its targeted LICs.
NMTC zeroes in on specific areas needing an economic boost.
By identifying low-income communities by census tracts, the program can ensure investments go to neighborhoods most in need.
Investing in community development pays off.
Investors channel funds that are directed into projects via CDEs or CDFIs. They then receive a credit against federal income tax, amounting to an impressive 39% of the investment!
NMTC isn’t a quick fix but a long-term commitment.
The credit amount totals 39% of the investment value claimed over a seven-year period. The longevity of the program encourages sustained investment in community development.
Here are the benefits of the New Markets Tax Credit.
Growth-stage businesses particularly benefit due to offerings that include:
- Lowering federal tax liability through significant credits.
- Providing networking opportunities for community development organizations and entities.
- Opening doors to new partnerships and community ties.
The NMTC supports key aspects of business development.
The tax credit serves underprivileged areas by
- Injecting capital into communities;
- Inspiring equity investment;
- Sparking job creation; and
- Sustaining infrastructure development.
These objectives are good for communities and good for businesses.
Get a tax strategy for long-term business growth.
The NMTC is an opportunity to align your growth objectives with community development, creating a win-win scenario for your business and the communities you invest in.
Want to see if your business could benefit from the NMTC? Schedule a consultation today.
Talk soon,
Jeremy A. Johnson, CPA
References
- U.S. Government Publishing Office. HR 5662 (IH) Community Renewal Tax Relief Act of 2000. GovInfo. Available from: https://www.govinfo.gov/app/details/BILLS-106hr5662ih
- U.S. Department of the Treasury. NMTC Allocatee awards. NMTC Allocatee Awards | Community Development Financial Institutions Fund. Available from: https://www.cdfifund.gov/awards/nmtc
- U.S. Department of the Treasury. CDE Certification | Community Development Financial Institutions Fund. Available from: https://www.cdfifund.gov/programs-training/certification/cde