A Treasury and HUD Partnership To Promote New Markets Tax Incentives
Throughout this publication are examples of the effectiveness of Federal, State and local partnerships in assisting low-income communities increase economic opportunities through business development and expansion. One such partnership currently exists between Treasury and HUD as they couple their efforts to aggressively promote and promulgate the following New Markets Tax Credit (NMTC) information to their respective constituents.
The NMTC Program objective is to stimulate economic and community development and job creation in low-income communities. This program provides an innovative path for attracting needed capital from the private sector and for reducing the federal burden of providing direct grants to low-income communities.
Under the NMTC Program, taxpayer investors 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 use by the CDE to provide investment in low-income communities, including RCs and EZs. The credit provided to the investor totals 30% of the cost of the investment and is claimed over a seven-year credit allowance period. Throughout the life of the NMTC Program, Treasury is authorized to allocated to CDEs the authority to issue to their investors up to the aggregate amount of $15 billion in equity as to which NMTCs can be claimed.
The benefits of the NMTC Program flow to both the investor and the business borrower. The investor invests capital funds in the lower-income area, and by so doing receives a tax credit. The formula for determining credit over the seven-year period is as follows: during the first three years of the investment, five percent of the total amount paid for the stock or capital interest at the time of purchase, and the tax credit during the final four years is increased to six percent annually.
To claim the credit for a year, the investor must hold the qualified equity investment on the credit allowance date for that year. The credit allowance date is the date you make the initial investment and applies to each of the next six anniversary dates.
Businesses also benefit from the NMTC program, as private sector resources are made available to them to better meet their short and long term financial needs through increased loans and financial technical assistance.
In three rounds of NMTC allocations made since 2002, the Treasury has made 170 awards of NMTC allocations totally $8 billion in tax credit authority, leaving $7 billion still to be allocated. For more information about the next allocation cycle, including the application process, visit the Treasury Web site at www.CDFlfund.gov.