What are New Markets Tax Credits?

New Markets Tax Credits were created in 2000 as a vehicle to attract investment capital to low-income neighborhoods that had been left behind by the traditional private marketplace. The program is administered by the Treasury Department, through its Community Development Financial Institution Fund (CDFI Fund), which allocated more than $29 billion in New Markets investment authority from 2002 (the first year of allocations) through 2010.

New Markets investments have financed more than 3,000 businesses and helped create 350,000 jobs. The program is highly efficient, generating $8 in private investment for every $1 of cost to the government. It has spurred more than $50 billion in funding to businesses in low-income communities, with the $15.5 billion in direct New Markets investments already made leveraging another $34 billion in public and private sources. Because of its success, the New Markets program was recently selected as a Top 25 government program in the competition for the Innovations in American Government Award administered by the Harvard Kennedy School’s Ash Center.

The program offers institutional and individual investors a 39 percent credit against their federal income tax, which is based on the amount invested and taken 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 as well as for working capital and equipment financing.

We have put together a slideshow to explain the NMTC program from the investor's perspective.  And take a look at LISC's policy brief on NMTCs for more information.

Related Links
http://nmtccoalition.org
http://www.cdfifund.gov/index.asp
www.irs.gov/pub/irs-utl/atgnmtc.pdf