Program Overview
A substantive overview of how the NMTC program works, who qualifies, and how the economics flow to your project.
The New Markets Tax Credit program is often described as a financing tool. In practice, it operates as a competitive allocation system.
Projects do not receive NMTC capital simply because they qualify. They receive it because they align with allocation priorities and withstand underwriting scrutiny.
This overview explains the structure of the program. Our advisory work focuses on how projects compete within it.
Background
The New Markets Tax Credit program was created by Congress in December 2000 as part of the Community Renewal Tax Relief Act. It is administered by the U.S. Treasury's Community Development Financial Institutions (CDFI) Fund.
The program's core objective is to attract private capital investment into low-income communities by offering tax credits to investors who make qualified equity investments in certified Community Development Entities (CDEs). Those CDEs, in turn, deploy the capital into qualified businesses and real estate projects in low-income census tracts.
Since inception, the program has completed more than 20 allocation rounds, made over 1,800 awards, and authorized more than $81 billion in total tax credit authority. The most recent combined round (CY 2024–2025) awarded a record $10 billion to 142 organizations nationwide.
The program was recently made permanent by Congress — a significant milestone that removes the uncertainty that previously complicated long-range planning for investors, CDEs, and project sponsors alike.
Mechanics
Investors receive a tax credit equal to 39% of their qualified equity investment in a CDE, claimed over a 7-year period: 5% per year for the first three years, and 6% per year for the final four years.
Tax credit investors — typically large financial institutions — purchase these credits at a market rate (generally $0.70–$0.90 per dollar of credit). The capital they provide flows through the CDE to your project as a Qualified Low-Income Community Investment (QLICI), typically structured as a below-market loan.
In a typical transaction, a project sponsor can expect a net benefit of 15–25% of eligible project costs, which directly reduces the amount of traditional debt or equity the project needs to carry.
Deal Example
$10M
Eligible project cost
$3.9M
Total tax credits generated (39%)
$3.1M
Credit value at $0.80 pricing
~$2.5M
Estimated net benefit to sponsor (after fees & costs)
Tax Credit Investor
Provides equity investment to the CDE in exchange for tax credits
Community Development Entity (CDE)
Receives equity, makes QLICI loans to qualified projects
QALICB
Your project receives below-market QLICI loan — the net benefit
7-Year Period
Investor claims 39% credit; compliance maintained; exit at year 7
Eligibility
A Qualified Active Low-Income Community Business (QALICB) must meet several key tests. Most projects either clearly pass or fail once you understand the criteria.
The business or project must be located in a qualifying low-income census tract — defined as a tract with a poverty rate of at least 20%, or median family income at or below 80% of the greater metropolitan or statewide median.
At least 50% of gross income must be derived from active business operations within a low-income community. At least 40% of tangible property and 40% of services must be within the community.
Healthcare facilities, community centers, manufacturing, mixed-use commercial, grocery and healthy food access, charter schools, renewable energy — among others. Real estate that is the site of an operating business typically qualifies.
Less than 5% of assets can be attributable to collectibles or certain non-qualified financial instruments. Working capital and certain intangibles may count toward the asset test with proper structuring.
Residential rental property, golf courses, massage parlors, hot tub facilities, racetracks, gambling establishments, and retail stores that primarily sell single-item purchases for off-premises consumption are explicitly excluded.
The qualification analysis is the right first step — before you engage a CDE, hire legal counsel, or spend months on a financing strategy that may not be available to you.
Discuss a ProjectThe Ecosystem
The CDFI Fund — part of the U.S. Department of the Treasury — administers the NMTC program. It runs competitive allocation rounds, certifies CDEs, and monitors compliance throughout the 7-year credit period.
Community Development Entities (CDEs) are the certified financial intermediaries that receive allocation authority from the CDFI Fund. They apply competitively in each round and, if awarded, deploy that allocation into qualifying projects as QLICI loans.
QALICBs work with an approved CDE — they do not apply directly to the CDFI Fund. This means CDE selection is one of the most consequential decisions in the NMTC financing process. CDEs vary significantly in their allocation priorities, geographic focus, sector expertise, transaction experience, and deal terms.
This is where knowledgeable advisory is most valuable. Selecting the wrong CDE — or accepting the first term sheet you receive — can mean a worse net benefit, a longer timeline, or a transaction that does not close. An independent advisor helps you identify the right CDE relationships and evaluate term sheets on an apples-to-apples basis.
Program Impact
Since program inception through FY 2024
$81B
Total allocation authority authorized
$71B
Invested in low-income communities
8,000+
QALICBs financed
1,800+
Allocation awards made
259M+
Sq ft commercial real estate built or rehabilitated
850K+
Jobs created or retained
Next Step
If you are evaluating whether a project is a viable NMTC candidate — or whether it can compete for allocation — we can review structure, positioning, and risk.
Discuss a Project