Jump to main content.


New Markets Tax Credit

On This Page

Program Background
How the Program functions
How the Program is Used
Advantages for Brownfield Stakeholders

Program Background

The New Markets Tax Credit (NMTC) Program is designed to stimulate the economies of low-income communities. The NMTC Program was created through the Community Renewal Act of 2000. It is administered by the Community Development Financial Institutions (CDFI) Fund under the U.S. Department of the Treasury. Each year, tax credits are allocated for distribution to certain qualifying entities, known as Community Development Entities (CDEs), through the CDFI Fund. The NMTC is beneficial to brownfields developers.

The NMTC Program provides private-sector investors (e.g., banks, insurance companies, corporations or individuals) with federal income tax credits, in return for new investments in eligible businesses in low-income communities, including brownfields projects. CDEs can include organizations such as community development corporations (CDCs), community development financial institutions, community development venture capital funds, small business development corporations, community loan funds, specialized small business investment companies and others. The purpose of the NMTC Program is to expand the availability of credit, investment capital, and financial services in distressed urban and rural communities. This unique funding mechanism offers a viable option for brownfields stakeholders.

Top of page

How the Program Functions

The NMTC Program allows certified CDEs to apply through a competitive application process to receive an allocation of New Markets Tax Credits. Once a CDE receives an allocation of credits, the credits can be offered to investors in exchange for project financing and stock or capital interest in the CDE project. The credit provides a total of 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 five percent 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.

For example, an investor wants to receive tax credits from a CDE that has received an allocation of New Markets Tax Credits. This investor (taxpayer) has $100,000 to invest in the CDE. The identified CDE is completing a mixed-use redevelopment project on a brownfields property. In exchange for the $100,000 investment in the CDE’s project, the taxpayer receives $39,000 worth of tax credits (available over seven years) which will reduce the amount of income owed by the investor by $39,000. The investor will also receive stock or an equity interest in the CDE’s redevelopment project.

Although all of a CDE’s investments must be made within a low-income area identified by a CDE, there is significant flexibility in the types of projects the CDE can support. All investments made by a CDE have some potential for a rate of return. Eligible investments for CDEs in low-income communities include:

Each investor can claim 5% or $5,000 annually from their federal income tax in years one to three of the tax credit. In years four through seven, the investors can claim 6% or $6,000 per year. The total tax credit value to the investor over seven years is $39,000 or 39%.

YR 1: $5,000
YR 2: $5,000
YR 3: $5,000
YR 4: $6,000
YR 5: $6,000
YR 6: $6,000
YR 7: $6,000
TOTAL: $39,000

Before being eligible to receive New Markets Tax Credits, a CDE must become certified. When applying to become certified as a CDE, the CDFI Fund evaluates CDE applications in four areas: business strategy, capitalization strategy, management capacity and community impact. In addition, the CDE must maintain accountability to residents of low-income communities through representation on a governing or advisory board. Community entities applying to become a CDE may submit CDE Certification Applications at any time of the year to the CDFI Fund. The CDE application process is straightforward and takes little time to complete. Once an organization is certified, the designation lasts for the life of the organization. Both nonprofit and for-profit groups may apply to be certified by the CDFI Fund.

As a certified CDE, the organization can then apply to receive an allocation of New Markets Tax Credits. The NMTC Allocation applications are due in the fall with recipients being announced the following spring.

How the NMTC process functions:

  1. An entity applies to the CDFI Fund for certification as a CDE.
  2. Once certified, the CDE engages in a competitive application process for the tax credit allocation.
  3. If selected, the Fund awards a tax credit allocation to the CDE. (If not selected, the CDE may apply to another existing CDE that has been selected to receive Tax Credits. For example, if the ACME Community Development Corporation does not receive an allocation of tax credits but Jackson Heights Coalition does, ACME can apply to Jackson Heights to receive tax credits. ACME functions as another investor in Jackson Heights.)
  4. The CDE secures investors through the sale of stock or issuance of an equity interest in exchange for the tax credits.
  5. The CDE uses the resulting investor equity to make investments in low-income communities.
SNAPSHOT
CDEs Investing in Brownfields Projects

Several CDEs are exploring investments in brownfields projects, such as:

For more information on these and other CDEs, please visit http://www.cdfifund.gov

new markets Tax Credit Flow Chart

Top of page

How the Program is Used

Parties interested in using the NMTC Program to supplement brownfields project financing have three primary options.

Top of page

Advantages for Brownfields Stakeholders

Brownfields stakeholders will also find several advantages by using the NMTC Program for financing brownfields cleanup and redevelopment projects.

Top of page

Community Development Financial Institutions (CDFI) Fund
601 13th Street, NW, Suite 200 South
Washington, DC 20005
NMTC Support Line: 202-622-6355
www.cdfifund.gov

The CDFI Fund Web site is a government site that provides access to CDE application materials and workshops, legal review services of NMTC-related documents, and a map of qualified census tracts and counties under the NMTC Program. The Web site also provides a list of certified CDEs, profiles of community revitalization projects CDEs are targeting, and can guide stakeholders towards possible brownfields project financing.

Region 3 | Mid-Atlantic Cleanup | Mid-Atlantic Brownfields & Land Revitalization


Local Navigation



Jump to main content.