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This little-known, often misunderstood credit offers significant tax savings potential for real estate investors. The NMTC permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must, in turn, be used by the CDE to provide investments in low-income communities.
More than $21 billion has been allocated to the New Markets Tax Credit (NMTC) Program.
The credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to 5% of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is 6% annually. The Community Development Financial Institutions (CDFI) Fund has made 396 awards totaling $21 billion in allocation authority.