New Market Tax Credits

The New Markets Tax Credit Program (NMTC) is a community development tool designed to stimulate the flow of investment in underserved communities by creating new jobs and accelerating economic revitalization. The program encourages private capital investment in low-income communities by providing a 39% federal tax credit to investors.

The Community Development Financial Institutions Fund (CDFI Fund), a division of the U.S. Treasury allocates NMTCs annually through a competitive application process. Texas Community Development Capital, a subsidiary of TXCDC, was awarded $75 million of tax credit authority in October of 2009. The credits are available for deployment for qualified projects and businesses in qualified census tracks within Texas. Approximately 64% of the allocation will be targeted to urban communities. The remaining 36% will be committed to rural areas. The majority of the investments will target businesses and projects located in higher distressed neighborhoods. These tax credits will support critical projects around the state by offering flexible, below market financing terms for commercial real estate, mixed use development, nonprofit community facilities, healthcare facilities and other permitted uses.

Click here to get the NMTC Intake Form.

New Market Tax Credits in the News.

Frequently Asked Questions

What is the New Markets Tax Credit (NMTC) Program?

The NMTC Program was created as part of the Community Renewal Tax Relief Act of 2000 to offer investors a federal tax credit for making qualified investments such as loans and capital investments in businesses and projects in underserved areas. By making an investment, the investor can receive a tax credit worth 39% of the initial investment, distributed over seven years.

Example:
Value of tax credits for a $1 million investment

Years 1-3	5%	Value $50,000 per year
Years 4-7	6%	Value $60,000 per year
Total	39%	$390,000 total value of tax credits

What is the definition of a low-income community?

In general, a low-income community is defined as a Census tract with a poverty rate of at least 20% or with median income of up to 80% of the area or statewide median, whichever is greater. For a non-metropolitan census tract, 80% of the statewide median is acceptable.

Who benefits from NMTCs?

Businesses, investors, and communities will benefit from NMTCs. The NMTC program was designed to make investment capital available to businesses in qualifying low-income communities, to create jobs and spur additional economic development. The federal government created the NMTC as an inducement to private investors to open the flow of investment capital into these communities. These tax credits, when considered along with the potential return on their investment in the Community Development Entities (CDEs), create a substantial financial benefit for the investors as well.

How do I find out what census tracts qualify?

Investors or business owners interested in determining what census tracts qualify as low-income communities can call Texas Community Development Capital at (512) 477-5732 or by using the mapping tool provided by Novogradac & Company.

What forms of investment are available?

Texas Community Development Capital in partnership with its investors and lenders offers a wide range of flexible financing options that include interest-only loans, equity investments; senior and subordinate mortgages to qualifying businesses and projects. The forms of financial support will vary based on the nature and need of the specific application.

Can the NMTC be used for housing?

In certain circumstances, NMTC may be used to finance mixed-use projects, where less than 80% of the gross rental income comes from dwelling units. In some cases, it may be possible to segregate an investment in a mixed-use project to eliminate the issue of the 80% rental cap.

Low-income Housing Tax Credits and New Markets Tax Credits may NOT be used to subsidize the same square foot. However, Historic Tax Credits maybe used in combination with NMTCs.

NMTC funds may also be used to finance businesses that purchase, rehab and sell single-family homes by investing in businesses that are involved in affordable housing.

Are there any prohibited businesses or projects?

In addition to the housing limitation, the following are prohibited uses:

• Private golf courses
• Development or holding of intangibles for sale or license
• Country clubs
• Massage parlors
• Hot tub facilities
• Suntan facilities
• Racetracks or other gambling facilities
• Liquor stores
• Farming activities
• Businesses engaged in renting to lessees participating in prohibited activities

How do I acquire a NMTC investment for a business or project?

The first step is to complete as much of the NMTC Funding Application as possible so that we have a good understanding of the proposed project and its applicability for the NMTC program. After reviewing the provided information, we will contact you for a preliminary discussion of your needs and the options available.

If there is a mutual decision to go forward on structuring a NMTC investment, we will require completion of an investment package. The required content does not vary significantly from a bank loan application except we take a greater interest in capturing the expected community impacts. After a favorable review of the completed investment package and obtaining necessary verifications, we will issue a commitment letter specifying the investment available and other transaction parameters.