Frequently Asked Questions
What is the New Markets Tax Credit (NMTC) Program?
The NMTC Program was created as part of the Community Renewal Tax Relief Act of 2000 to offer investors a federal tax credit for making a Qualified Equity Investment (QEI) in designated Community Development Entities (CDEs) who in turn will make Qualified Low Income Community Investments (QLICIs) such as loans and capital investments in businesses in underserved areas. By making an equity investment in a CDE the investor can receive a tax credit worth 39 percent of the initial investment, distributed over seven years.
Example:
Value of tax credits for a $1 million investment
Years 1-3 5% Value $50,000 per year
Years 4-7 6% Value $60,000 per year
Total 39% $390,000 total value of tax credits
How do NMTCs work?
The Community Development Financial Institutions Fund (CDFI Fund), a division of US Treasury certifies CDEs on an ongoing basis, and allocates NMTC Allocations annually to select CDEs through a competitive application process.
The following is a sample illustration of how NMTCs work:
What is the definition of a Low Income Community?
In general, a Low-Income Community is defined as a Census tract with a poverty rate of at least 20%, or with median income of up to 80% of the area or statewide median, whichever is greater. For a non-metropolitan census tract, 80% of the statewide median is acceptable.
How do I find out what census tracts in my area qualify?
Investors or business owners interested in determining what census tracts qualify as Low-Income Communities can call John Plakorus at CHFA, 303.297.7494 or visit the Novogradac and Company mapping tool.
What kinds of development activity will the CGR Fund pursue with funds secured through NMTC investments?
The CGR Fund in partnership with its investors and lenders offers a wide range of flexible financing options that include interest only loans, equity investments; senior and subordinate mortgages to qualifying businesses. The CGR Fund will target the majority of the financing to businesses located in higher distresses neighborhoods for commercial real estate, mixed-use development, nonprofit community facilities and renewable energy. Please contact Masouda Omar at 303 297-7330 or by email at momar@chfainfo.com to discuss your project and eligibility requirements.
What is a CDE?
The CDFI Fund has the following requirements for qualification as a CDE. A CDE is any duly organized entity treated as a domestic corporation or partnership for federal income tax purposes that: (a) has a primary mission of serving, or providing investment capital for, low-income communities or low-income persons; (b) maintains accountability to residents of low-income communities through their representation on any governing board of the entity or any advisory board to the entity; and (c) has been certified as a CDE by the CDFI Fund.
Who benefits from NMTCs?
Businesses, investors, and communities will benefit from NMTCs. The NMTC program was designed to make investment capital available to businesses in qualifying low-income communities, to create jobs and spur additional economic development. The Federal Government created the NMTC as an inducement to private investors to open the flow investment capital into these communities. These tax credits, when considered along with the potential return on their investment in the CDE, create a substantial financial benefit for the investors as well.
Can the NMTC be used for housing?
In certain circumstances, NMTC may be used to finance mixed-use projects, where less than 80% of the gross rental income comes from dwelling units. In cases such as this, the Low-Income Housing Tax Credits and New Markets Tax Credits may NOT be used to subsidize the same square foot. NMTC funds may be used to finance businesses that purchase, rehab and sell single family homes by investing in businesses that are involved in affordable housing.