New Markets Tax Credits
What is the New Markets Tax Credit (NMTC) program? The New Markets Tax Credit (NMTC) program is designed to incentivize investors, through the use of tax credits, to promote economic growth in distressed communities. Inadequate access to healthcare service and education as well as the abundance of vacant or outdated commercial facilities are common in these communities. This causes an economic downturn, worsening the situation. NMTC Program strives to reverse this by attracting private investors to bring a flow of capital development in the region and reinvigorate the local economy through growing businesses and creating jobs. Project Eligibility All NMTC projects must be located in targeted areas of distress having a significant poverty rate or low median income when compared to the surrounding area or unemployment rates significantly higher than the national unemployment rate. Many types of property investments such as office, retail, industrial, educational, and healthcare real estate are allowed in the program. How It Works Private investors can invest in businesses or development projects within the qualified distressed area and over seven years can receive federal tax credits up to 39 percent of their entire Qualified Equity Investment (QEI). The investments are made via a Community Development Entity (CDE) that has been awarded allocation authority by a Community Development Financial Institutions Fund (CDFI Fund). Businesses and developers are able to get more flexible financing below-market interest rates and better underwriting terms. There are a variety of purposes for which the financing proceeds can be used, but they are most usually used to build or update real estate projects. The distressed communities can expect permanent quality jobs, improvement to access to services and good, and new construction and revitalization of the existing physical amenities in the community. This, in turn, helps to promote future development.
The Impact of New Markets Tax Credit Investments
New Markets Tax Credit qualified areas have historically not attracted significant investment due to the economic distress and perceived risk. It is one of the biggest hurdles to revitalizing these communities. However, in a comprehensive study by the Urban Institute, it is evident that NMTC projects inject significant amounts of permanent and construction jobs with positive improvement in the community through rehabilitated and new real estate along with expanding tax revenue. With the development of new businesses and growing existing businesses, there is an opportunity to employ a larger local workforce and expand the tax base of the area. Residents are more readily able to purchase goods and services and find affordable housing. A survey by the New Markets Tax Credit Coalition found that the program has:
- Helped support more than 15,000 businesses in low-income communities
- Developed or rehabilitated over 68 million square feet of real estate
- Created more than 500,000 jobs
As evidenced by the “NMTC Economic Impact Report,” by the New Markets Tax Credit Coalition, qualifying distressed, low-income communities receive positive and often immediate impact through the catalyst of the investments through the NMTC program.
“NMTC investments have leveraged more than $90 billion in economic activity creating well over 1,000,000 full time, permanent jobs at a cost to the federal government of less than $20,000 per job.” – New Markets Tax Credit Coalition
Interested in New Markets Tax Credits?
