The New Markets Tax Credit (NMTC) program was extended through 2025 with a $5 billion annual appropriation as part of the Consolidated Appropriations Act, 2021, signed by President Trump on December 28, 2020. Before the extension, the NMTC was set to expire at the end of 2020.
The NMTC appropriation increased from $3.5 billion per year for calendar years 2010 to 2019 to $5 billion per year for calendar years 2020 through 2025. Additionally, the legislation permits any unallocated funds less than the $5 billion appropriation to be carried forward through 2030, instead of 2025 as under prior law.
The NMTC program was created to encourage investment in low-income communities (LICs) and grow businesses, create jobs and sustain healthy local economies through federal tax incentives. Investments eligible for the NMTC have included businesses in a variety of sectors including manufacturing, food, retail, health, technology, energy, education and childcare. According to the Community Development Financial Institutions Fund, the NMTC program has created or retained more than 830,000 jobs since 2003 and the program generates eight dollars of private investment for each dollar of federal spending.
The NMTC program provides a tax credit equal to 39% of an investor’s qualified equity investments (QEIs) in community development entities (CDEs) over seven years. A project must be located in a LIC or in certain high-migration rural counties to be eligible for the NMTC. LICs are defined as Census Tracts that have poverty rates of 20% or more or that have a median family income less than 80% of a relevant comparison area.
McDermott’s View: The extension of and increased appropriation for the NMTC program will create opportunities for businesses and project developers seeking funding from CDEs. Businesses and developers should begin exploring potential transactions and projects now. This is also a good time for tax equity investors to consider making new or increased investments in NMTC-eligible projects.