New Markets Tax Credits
Federal New Markets Tax Credits
In December 2000, the U.S. Congress passed the Community Renewal Tax Relief Act, creating what has come to be known as the New Markets Tax Credit Program. This program is designed to encourage investments in qualified low-income communities that traditionally have had poor access to both debt and equity capital.
As a dollar-for-dollar reduction in federal income tax liability, the new markets tax credits are based on the amount of debt or equity investment that is made by the investor who will use the tax credit. The tax credits are taken during a seven-year period and total 39% of the debt or equity investment consisting of 5% percent in the first three years and 6% in the next four years. This simply means that for every million dollars invested, the investor will receive a bottom line tax credit of $50,000 per year for three years and $60,000 per year for the next four years totaling $390,000 in tax credits during the seven-year period.
In order to qualify for the new markets tax credits, an investment must be made to either a business or a non-residential, commercial property that is located in a low-income community through a community development entity (CDE). Qualified CDEs apply to the Community Development Financial Institutions Fund, a branch of the U.S. Department of the Treasury, for tax credit allocations that are awarded annually through a competitive application process. If selected, a CDE has a five-year time limitation in order to utilize the new markets tax credit allocation.
As a designated CDE utilizing the new markets tax credits, CCG Community Partners, LLC, an affiliate of CCG, offers investment capital in the form of medium and long-term primary mortgages, medium-term mezzanine financing, and traditional equity investments to owners of businesses and commercial properties located within qualified low-income communities.
State New Markets Tax Credits
Recognizing the success of the federal program, some states have adopted legislation establishing state new markets tax credits.
Among the states that offer new markets tax credits to encourage investments in qualified low-income communities are Florida, Illinois, Louisiana, Mississippi, and Missouri.
These new markets tax credit programs tend to have varying eligibility requirements and restrictions from state to state.