How do New Market Tax Credits work?
The New Markets Tax Credits program is authorized by the Treasury Department’s CDFI Fund.
Congress periodically authorizes NMTC allocation amounts. The New Markets Tax Credit Extension Act of 2021 extends the program through 2025. As a result, five billion of NMTC allocation authority is available for awards annually. Indy CDE submits its NMTC application to the CDFI Fund each Fall and competes against other CDEs from across the country for awards. The CDFI announces awardees each summer.
Indy CDE reviews project applications submitted by local organizations and developers and prioritizes projects for funding.
Applications are accepted by the CDE year-round. For more information about the application process, please go here. Projects meeting NMTC eligibility requirements and expected to generate significant community benefits that align with the City’s development goals receive higher priority. If Indy CDE receives an award from the CDFI Fund, priority projects will be awarded NMTCs based on priority and preparedness.
Business owners and developers benefit from the flexibility of NMTC financing.
NMTC financing provides a range of unique benefits to business owners not available with traditional financing options. Below-market interest rates, flexible loan terms, low origination fees, and higher loan-to-value ratios are several advantages of financing with NMTC. The tool also allows a 7-year interest-only period, reducing debt service obligations at the beginning of the project.
Business owners can use this financing for several activities:
- Real estate acquisition
- New construction
- Rehabilitation of an existing property
- Equipment purchases
- Investment in emerging technologies
- Working capital
Investors reduce their tax liability when investing in communities.
NMTC investors receive a tax credit equal to 39% of the qualified equity investment. These tax credits are available for use in incremental amounts over a 7-year compliance period.
Communities benefit from investments.
Low-income communities face significant hurdles when seeking private investment for projects. The main priority for Indy CDE is helping low-income communities overcome these hurdles allowing neighborhoods to build economic and social resilience through projects that would not have been possible without NMTC financing.