What are New Markets Tax Credits?
Created in 2000, the New Markets Tax Credit (NMTC) program serves as a vehicle to attract investment capital into low-income neighborhoods that have been left behind by the traditional private marketplace. The Treasury Department administers the program through its Community Development Financial Institution Fund (CDFI Fund), which has allocated more than $43.5 billion in tax credit authority since the first year of allocations in 2002.
New Markets investments have financed more than 4,800 businesses, helped create or retain 197,000 jobs, and supported 164 million square feet of manufacturing, office, and retail space. The program is highly efficient, generating $8 in private investment for every $1 of cost to the government. It has spurred more than $90 billion in funding to businesses in low-income communities, with the $31 billion in direct New Markets investments leveraging more than $60 billion from public and private sources. Because of its success, the New Markets program was selected as a top 25 government program in the Harvard Kennedy School's Ash Center competition for the Innovations in American Government Award.
The program offers institutional and individual investors a 39 percent credit against their federal income tax, which is based on the amount invested and claimed over seven years. It requires investment in distressed areas, particularly those with high unemployment, high poverty rates, and low median incomes for residents. The credit can be used for commercial real estate development, working capital, and equipment financing.