The New Market Tax Credit Program – History & 2021 Revival

NYC-based boutique law firm Pardalis & Nohavicka brings the latest legal updates from the world of real estate. Pardalis & Nohavicka handles an eclectic array of matters, representing individuals and business owners in civil litigation, criminal cases and business transactions, currently litigating and representing clients throughout the United States and around the world.

Several provisions to revive the real estate industry passed as part of the latest relief bill (the Consolidated Appropriations Act), including tax incentive programs for investors. One of these incentives is the New Market Tax Credit program (NMTC), which has been extended for an additional five years — through 2025 — in an effort to boost businesses and economic development in low income areas.

But what is the  NMTC program and how has it affected developers, and communities, in the past 20 years?

A Brief History of the New Markets Tax Credit

The NMTC was established in 2000 as part of the Community Renewal Tax Relief Act of 2000, which was designed to stimulate development and economic growth in lower-income communities. Specifically, the program attracts private investors by providing tax incentives to develop areas with low-income housing. In turn, these developers receive a federal tax credit for investments made on projects in areas with an individual poverty rate of at least 20% or a median family income at or below 80% of the area median. 

How Does the NMTC Program Work?

Once an investor has a certified Community Development Entity (CDE), they can bid for a limited number of NMTCs, of which there is a limited amount given every year. Each development is then evaluated based on its potential to create positive and impactful change for lower-income communities, such as businesses that create job opportunities, as well as local access to facilities and commercial services.

If the application is approved and the CDE receives the NMTC, they are then allocated to investors who receive a tax credit equal to 39% of the total investment in the CDE. The tax credit is then claimed throughout a seven-year period.

Rules & Regulations for NMTC

To comply, the CDE must invest a substantial amount of investor funds into eligible commercial real estate and businesses within 12 months of receiving certification. Otherwise, they will lose their certification and the tax credits will be recaptured. Notably, NMTCs cannot be used with sole multifamily properties. They must have at least 20% commercial use to promote jobs within the community.

By 2016, the NMTC program had financed more than 5,400 businesses throughout the U.S. and created 178 million square feet of commercial and/or manufacturing space. In particular, for every $1 of federal funding, the program has generated $8 of private investment. The central idea is that, as these communities continue to develop through this program, the community becomes even more desirable for investors.

About:

Real Estate and Corporate Transactions Attorney Nataly Goldstein is a graduate of Cardozo School of Law, where she served as President of the Real Estate Law Association.  She is experienced in both residential and commercial real estate transactions, and she prides herself on guiding her clients through every step of their transaction, whether they are first home buyers or franchised businesses.