New Markets Tax Credits (NMTC): Federal Tax Credits for Investment in Distressed Communities
New Markets Tax Credits (NMTC) provide 39% federal tax credit over 7 years for investment in qualified low-income communities. Created 2000 to attract investment to distressed communities. Substantial financing for projects in qualified census tracts. Administered by CDFI (Community Development Financial Institutions Fund) at Treasury. Substantial complexity requiring specialty expertise including CDE (Community Development Entity) intermediaries. Understanding NMTC helps construction firms serve community development.
This post covers New Markets Tax Credits.
NMTC structure:
NMTC structure
- 39% federal credit over 7 years
- 5% years 1-3, 6% years 4-7
- Allocated to CDEs by CDFI Fund
- CDE invests in qualifying businesses
- Specific to low-income communities
- Substantial structuring complexity
NMTC structure specific. 39% federal credit over 7 years provided to investor. 5% years 1-3, 6% years 4-7 schedule. Allocated to CDEs (Community Development Entities) by CDFI Fund competitively. CDE invests in QALICBs (Qualified Active Low-Income Community Businesses). Specific to low-income communities (qualified census tracts). Substantial structuring complexity — substantial legal and financial work required.
Eligible projects broad:
Eligible projects
- Mixed-use development
- Healthcare facilities (community)
- Educational facilities (charter schools, etc.)
- Manufacturing in distressed areas
- Retail in food deserts
- Specific to qualifying community
- Substantial projects ($5M-$30M typical)
Eligible projects broad in low-income communities. Mixed-use development substantial NMTC use. Healthcare facilities particularly community health centers. Educational facilities including charter schools, community colleges. Manufacturing in distressed areas creating jobs. Retail in food deserts (grocery stores). Specific to qualifying low-income community (qualified census tracts). Substantial projects $5M-$30M typical though smaller and larger possible.
Qualified census tracts:
Qualified census tracts
- Substantial portion of US tracts qualify
- Specific income thresholds
- Specific to specific tract
- Mapping tools available (CDFI Fund)
- Substantial coverage
- Specific to project location
Qualified census tracts substantial coverage. Substantial portion of US census tracts qualify based on poverty and income criteria. Specific income thresholds (less than 80% area median income, or specific poverty rates). Specific to specific tract — some areas qualify, adjacent may not. Mapping tools available through CDFI Fund showing qualified tracts. Substantial coverage particularly urban core, rural distressed areas. Specific to project location.
Structure complexity substantial:
Structure complexity
- Multi-tier financing structure
- Investor (claims credits)
- CDE (intermediary)
- QALICB (project)
- Leverage loan typical (substantial)
- Substantial legal work
- Specific to deal
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Structure complexity substantial in NMTC deals. Multi-tier financing structure. Investor claims credits providing equity. CDE intermediary holding investments. QALICB project receiving investment. Leverage loan typical (substantial debt enabling substantial credits). Substantial legal work — attorney fees substantial portion of deal cost. Specific to deal structure with substantial customization.
Combined financing substantial:
Combined financing
- NMTC equity (investor)
- Leverage loans (banks)
- Other tax credits (LIHTC, HTC sometimes)
- Conventional debt
- Government grants
- Substantial financing layers
- Specific to deal
Combined financing substantial in NMTC deals. NMTC equity from investor purchasing credits. Leverage loans from banks (substantial debt). Other tax credits (LIHTC, HTC) sometimes combined for substantial subsidy. Conventional debt for remainder. Government grants sometimes. Substantial financing layers — 5-10+ sources typical. Specific to deal structure.
CDEs intermediaries:
CDEs
- Allocated NMTCs by CDFI Fund
- Substantial competitive process
- National and regional CDEs
- Specific mission and focus areas
- Substantial portion of allocation
- Specific deal selection
CDEs (Community Development Entities) intermediate NMTC investments. Allocated NMTCs by CDFI Fund through competitive process. Substantial competitive process — oversubscribed allocations. National and regional CDEs operating across markets. Specific mission and focus areas (some healthcare-focused, others manufacturing, etc.). Substantial portion of allocation per CDE. Specific deal selection per CDE strategy.
NMTC substantial complexity requires specialty expertise — attorneys, accountants, structuring consultants substantial value. Substantial transaction costs ($300K-$1M+ typical) require substantial project size justifying. Quality CDE relationships valuable. Substantial benefit for community development projects in distressed areas. Worth substantial attention for substantial community projects.
New Markets Tax Credits provide 39% federal credit over 7 years for low-income community investment. NMTC structure with multi-tier (investor, CDE, QALICB) financing. Eligible projects broad in qualified census tracts. Structure complexity substantial. Combined financing typical. CDEs intermediate investments. For construction firms serving community development, NMTC substantial financing tool. Quality specialty expertise essential. Worth substantial attention for substantial community development projects.
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Sarah Blake
Head of Product
Former AP Manager at a $200M construction firm, now leads product at Covinly. Writes about what AP teams actually need from automation — beyond the marketing promises.
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