The New Markets Tax Credit Program (NMTC) provides a federal income tax credit for qualified equity investments in designated Community Development Entities (CDEs), e.g., community development financial institutions, such as banks, credit unions, and venture funds. Substantially all of the qualified equity investment must in turn be used to provide investments in low-income, underserved communities.
Federal income tax credit provided to the investor, which equals 39% 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 the purchase. For the final four years, the value of the credit is 6% annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.
An organization wishing to receive awards under the NMTC Program must be certified as a CDE. To qualify as a CDE, an organization must meet the following criteria:
- Be a domestic corporation or partnership at the time of the certification application
- Demonstrate a primary mission of serving, or providing investment capital for, low-income communities or low-income persons
- Maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity
For more information, go here.