New Markets Tax Credits (NMTC) can be a great source of funds for qualifying projects. Many different types of projects can utilize NMTCs, the key qualification is location. If you are in a qualified location, your project can realize a funding source for 15-18% of the project's total costs. That includes both hard and soft costs incurred in the development of the project.
New Markets Tax Credits (NMTCs) are federal tax credits granted to developers who develop commercial or nonprofit enterprises in low income communities (LICs). Similar to Low Income Houseing Tax Credits, the NMTC program recognizes that it takes more than housing to help the low income populations of America. If a develper is building in such a LIC, they can qualify for NMTCs. These tax credits can be either used by the developer over 7 years, or the developer can opt to transfer the credits to an investor in return for cash to be used in financing its development. This is done through a fairly complicated, although tried-and-true, legal partnership structure.
NMTCs are a very flexible financing tool, and can be used for almost any commercial or nonprofit purpose. In fact, it is easier to say what they can't be used for. They can't be used for a development that is strictly housing, although some housing percentage (as in a mixed-use facility) is allowed. They can't be used for so-called "Blue Uses" such as liquer stores, massage parlors, hot tub facilies, etc. Good uses of NMTCs include grocery stores, nonprofit service centers, healthcare clinics, mixed-use buidlings, retail stores, manufacturing...the list goes on. To see some of the projects CFG has been involved in, please visit our Projects page.
The key component to qualifying a New Markets Tax Credit project is its location. A project must be in a Low-Income Community (LIC) defined by census tract. A qualifying LIC is located in a census tract in which 30% of the population lives below the poverty line. Alternatively, if the median family income of the tract is 60% or less than the greater area's median family income, it will also qualify.
Once it's determined that a project is in a qualifying LIC, the tax credit is usually transferred to an institution that uses the tax credit, in return for cash the project can use to develop the project. This transfer is done through a relatively complicated financial transaction involving several parties and legal teams.
Depending on the details of the transaction, the project's developer will realize cash in the amount of 15-20% of the project's costs, although this can sometimes be higher.
If you'd like to read a more technical explanation of the program, you can contact us, or click on the following links.