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New Markets Tax Credits

What It Is

The New Markets Tax Credit (NMTC) program was enacted in December 2000 by the U.S. Treasury Department as part of the Community Renewal Tax Relief Act. The initial purpose of the NMTC program was to spur private investment in businesses operating in low-income communities. As the NMTC program developed, Self-Help and others successfully advocated for the program to include nonprofits.


Under this program, the federal government allocates tax credits to "Community Development Entities," which include for-profit banks and nonprofit lenders like Self-Help. These intermediary organizations exchange the tax credits for equity from private investors and are then obligated to use the dollars to provide financing for businesses and nonprofits in low-income communities.


The federal government has made over $36.5 billion in allocations, $285 million of which was awarded to Self-Help in five rounds of allocations.


Eligible Projects

Self-Help uses its NMTC funds to help borrowers finance the purchase, construction, and renovation of real property. Past borrowers have included charter schools, healthy foods enterprises, green businesses, commercial real estate developers and nonprofits.


Benefits

The federal subsidy gets passed down to qualifying projects in the form of below-market interest rates and more flexible loan terms like longer amortizations and higher loan-to-value ratios. The below description can be used as an initial guide to eligibility. Self-Help must confirm whether the project is officially eligible.


Requirements

Projects must be located in a low-income census tract, defined for the purposes of this program as having either: (a) a poverty rate of at least 20 percent or (b) a median income no more than 80 percent of area median income. The majority of Self-Help's available funds require projects to be located in low-income areas of targeted distress, increasing the hurdle to: (a) a poverty rate of at least 30 percent, (b) a median income no more than 60 percent of the area median income or (c) an unemployment rate at least 1.5 times higher than the national unemployment rate. A series of other economic distress criteria can bump a location into the targeted distress classification if the baseline 20 percent poverty rate or 80 percent of AMI marker is met.


Various uses of property are allowed, including office, retail, education, health care, industrial, and hotel. Additionally, rental residential is permitted so long as no more than 80 percent of gross property revenue comes from residential units. For example, a mixed-use office / retail / apartment project may be eligible.


The borrowing entity for a project must also meet certain asset and revenue tests. A Self-Help loan officer will work through these issues with prospective applicants.


Additionally, certain "sin" businesses are prohibited from being borrowers or tenants in properties financed through the New Markets Tax Credit program. Examples include massage parlors, hot tub facilities, tanning salons or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.


NMTC Resources

To learn more about the NMTC program and its potential to help your organization, please contact our New Markets Tax Credit team or visit the New Markets Tax Credit Coalition.


To pre-screen a property address for eligibility, visit Novogradac and Company's online mapping site.


Read a case study on the impact NMTC investments have had in downtown Durham, N.C.

Read a profile of a NMTC success story - The Golden Belt Complex in North Carolina.