New markets tax credits provide much-needed private investment in economically distressed communities
New markets tax credits (NMTCs) create an incentive for taxpayers (typically financial institutions, insurance companies and other publicly-traded companies) to invest in community development projects located in low-income census tracts that may otherwise not attract significant private investment. The NMTC program targets projects that support job creation, drive economic growth or provide essential services, including manufacturing plants, commercial, retail, hospitality and mixed-use projects, and educational and health care facilities. The tax credit helps these projects by providing financing for hard and soft costs, including but not limited to, the cost of real estate acquisition, construction costs, furniture, fixtures and equipment purchases, and architect, engineering and other professional fees.
The federal NMTC program is administered by the Treasury Department’s Community Development Financial Institutions Fund, which allocates tax credit authority to Community Development Entities through a competitive application process. Investors benefit from participation in the program by receiving a tax credit against their federal income tax by making qualified equity investments in the CDEs.
Currently, the federal NMTC program is set to expire on December 31, 2020, though there is bipartisan support to extend the program – the U.S. House of Representatives passed the Moving Forward Act in July 2020, which contains a provision that makes the NMTC program permanent. Separately, Reps. Terri Sewell (D-AL) and Tom Reed (R-NY) introduced the NMTC Extension Act of 2019 (H.R. 1680), and Sens. Roy Blunt (R-MO) and Ben Cardin (D-MD) have introduced the New Markets Tax Credit Extension Act of 2019 (S. 750).
To further the economic development impact of the federal NMTC program, certain states have complementing state NMTC programs. In Ohio, the Ohio Development Services Agency oversees the Ohio New Markets Tax Credit Program, which provides up to $10 million in additional tax credit allocation awards to CDEs on an annual basis.
If you have questions about the NMTC program, contact the McDonald Hopkins attorney listed below.