NMTC
New Markets Tax Credit Program
New Markets Tax Credit Program
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 successfully advocated for the program to include nonprofits.
Under this program, the federal government allocates tax credits to “Community Development Entities,” such as for-profit banks and nonprofit lenders like Self-Help. By offering the tax credits to private investors, these entities raise funds that they use to provide financing for businesses and nonprofits in low-income communities.
The federal government has made over $26 billion in allocations, $220 million of which was awarded to Self-Help in three 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, commercial real estate developers, child care providers, churches and other 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 can 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% or (b) a median income no more than 80% 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: (1) a poverty rate of at least 30%, (b) a median income no more than 60% of the area median income or (c) an unemployment rate at least 1.5 times higher than the national unemployment rate. There are a series of other economic distress criteria that can bump a location into the targeted distress classification if the baseline 20% poverty rate or 80% 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% 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. For nonprofits such as charter schools, these tests are easily met. For commercial real estate projects, often a single purpose entity is created to own the property and be the borrower. A Self-Help loan officer will work through these issues with prospective applicants.
Additionally, certain “sin” businesses are prohibited from being 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.
