The New Markets Tax Credit (NMTC) Program was authorized by Congress in 2000 for the purpose of encouraging capital investment in low income communities. It 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.
The credit to the investor is equal to 39 percent of the cost of the investment and is claimed over a seven-year period. In each of the first three years, the investor receives a credit equal to five percent of the total amount of the investment, and in each of the final four years, the investor receives a credit of six percent. Investors may not redeem their investments in CDEs prior to the end of the seven-year period.
The NMTC Program is administered by the CDFI Fund in the US Treasury Department. Since the NMTC Program's inception, the CDFI Fund has made awards allocating a total of $50.5 billion (2016) in tax credit authority to CDEs through a competitive application process.
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