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New Markets Tax Credit (NMTC) equity investments in designated Community Development Entities

The New Markets Tax Credit (NMTC) Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs).

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Funding for Low Income Communities

Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities.

The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period.

In each of the first three years, the investor receives a credit equal to 5% of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.

Throughout the life of the NMTC Program, the Fund is authorized to allocate to CDEs the authority to issue to their investors up to the aggregate amount of $23 billion in equity as to which NMTCs can be claimed, including $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.

To date, the Fund has made 396 awards totaling $21 billion in allocation authority.

NMTC Eligibility for CDE Tax Credits

An organization wishing to receive awards under the NMTC Program must be certified as a CDE by the Fund. To qualify as a CDE, an organization must:
  • be a domestic corporation or partnership at the time of the certification application;
  • maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.
  • demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons;

    Some of the communities selected for these programs include:

    • High Migration Rural Counties
    • Low-Income Communities and Targeted Populations
    • Eligible Low-Income Communities in the Go Zone
    • Gulf Opportunity Zones
    • Katrina Severely Damaged Census Tracts
An organization that is currently certified as a Community Development Financial Institutions (CDFI) by the CDFI Fund or designated as a Specialized Small Business Investment Company by the Small Business Administration automatically qualifies as a CDE and may register to become a CDE via the online registration webpage.

For more information on accessing SBIC funds for a small business please refer to SBA's Entrepreneurs Seeking Financing.

Edited by Carolyn Allen
| small business |


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