Treasury New Markets Tax Credit Program

Catalyzing investment in underserved markets

The New Markets Tax Credit (NMTC) Program, administered by the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund, spurs private investment in low-income communities by offering investors a federal tax credit worth 39% of their Qualified Equity Investment (QEI) claimed over seven years. Community Development Entities (CDEs)—specialized financial intermediaries with missions to serve distressed neighborhoods—apply for NMTC allocation authority and, once awarded, deploy capital into Qualified Low-Income Community Investments (QLICIs) such as manufacturing plants, grocery stores, health clinics, mixed-use developments, or community facilities. Since inception, NMTC has mobilized more than $120 billion in investments, creating jobs, increasing access to essential services, and leveraging additional public and private financing.

Competition is intense: annual allocation rounds typically attract requests that exceed available authority three- to fourfold. Successful CDEs present compelling business strategies, robust pipeline projects, strong community engagement, and track records of delivering measurable impacts for low-income residents. This guide unpacks the entire NMTC lifecycle—certification, allocation application, investor negotiations, closing structures, compliance, and exit planning—so mission-driven organizations can design transactions that secure awards and deliver transformative outcomes.

Program fundamentals

Becoming a certified CDE

Organizations must be certified as CDEs before applying for allocation. Steps include:

1. Assess mission alignment. Demonstrate a primary mission of serving Low-Income Communities (LICs) and maintain accountability to those communities through representation on advisory or governing boards.
2. Gather organizational documentation. Provide formation documents, bylaws, charters, audited financial statements, and strategic plans.
3. Complete the CDE certification application via AMIS (Awards Management Information System). Outline service area, products, target populations, and accountability structures.
4. Establish a governing or advisory board with LIC representation. At least 20% must be residents or stakeholders of LICs.
5. Submit and monitor. Treasury typically reviews applications within 60–90 days. Certification lasts indefinitely as long as mission and accountability requirements are maintained.

Many organizations pursue certification well ahead of allocation cycles to build track records and demonstrate readiness.

Crafting a competitive allocation application

The allocation application comprises three scored sections: Business Strategy (45 points), Community Outcomes (25 points), and Management Capacity (25 points), plus five priority points. High-scoring proposals excel in the following areas:

Business Strategy

• Pipeline specificity. Provide detailed descriptions of pipeline projects totaling at least 150% of the allocation request. Include location, project sponsor, total project cost, NMTC need, and status (site control, permits, financing commitments).
• Innovative products. Offer flexible features like subordinated debt, below-market interest, longer maturities, higher loan-to-value ratios, forgivable debt, or interest-only periods.
• Targeting severely distressed communities. Demonstrate commitment to tracts with poverty rates ≥30%, unemployment ≥1.5 times national rate, or median incomes ≤60% of area median.
• Leverage strategy. Illustrate how NMTC fills financing gaps and mobilizes additional public/private capital.

Community Outcomes

• Impact metrics. Quantify permanent and construction jobs, quality affordable housing units, healthcare visits, child care slots, healthy food access, or educational seats created.
• Accountability. Highlight community engagement processes, advisory boards, or needs assessments shaping investment decisions.
• Non-metro investments. Address Treasury’s 20% requirement for rural deployment if applicable.
• Outcomes monitoring. Provide frameworks for collecting, verifying, and reporting impact data throughout the compliance period.

Management Capacity

• Experienced team. Showcase staff with deep NMTC structuring, underwriting, compliance, and asset management expertise.
• Prior success. Cite previous NMTC or similar community finance transactions, including performance metrics and compliance history.
• Systems and controls. Describe risk management, underwriting policies, reporting platforms, and compliance monitoring protocols.
• Capital-raising plan. Document relationships with investors, banks, philanthropy, or corporate partners who will provide QEI.

Priority points

Additional points may be available for applicants committing to rural investments, certain federal strategies (Opportunity Zones, Promise Zones), or partnership with other federal programs. Tailor your application to capture these boosts when aligned with your mission.

Building a robust project pipeline

Start pipeline development 12–18 months before the application window:

• Conduct community needs assessments. Collaborate with local governments, chambers of commerce, healthcare providers, and community organizations to identify projects that fill critical gaps.
• Issue requests for project concepts. Encourage developers, nonprofits, and entrepreneurs to submit summaries including cost, timelines, community impact, and NMTC need.
• Screen for readiness. Prioritize projects with site control, preliminary budgets, and realistic timelines to close within 18–24 months of allocation award.
• Diversify sectors. Balance real estate (mixed-use, manufacturing, healthcare) with operating business financing to demonstrate versatility.
• Document leverage sources. Collect letters of interest from banks, philanthropic funds, New Markets Tax Credit investors, or public agencies providing subordinate capital.

Maintain a living pipeline database tracking due diligence status, impact metrics, and potential allocation needs. Update regularly for application narratives and reporting.

Structuring NMTC transactions

NMTC deals often use the leverage structure, which combines investor equity with third-party debt to maximize Qualified Equity Investment amounts. Core components include:

1. Leverage lender. Provides a loan (often from banks, philanthropic funds, or public sources) to the investment fund.
2. Investor equity. Typically a bank or corporate investor contributes cash equal to the present value of the tax credits (roughly 20%–25% of QEI).
3. Investment fund. Formed as an LLC, it receives both leverage debt and investor equity, then makes a QEI into the CDE.
4. CDE. Uses the QEI to make a QLICI—loan or equity—to the qualified project (QALICB).
5. QALICB. The operating business or real estate entity deploying funds for eligible costs.

Key structuring considerations:

• Qualified census tract verification. Use CDFI Fund mapping tools to confirm tract eligibility, including severely distressed criteria.
• Eligible costs. NMTC proceeds can fund construction, equipment, working capital, and certain acquisition costs (with restrictions for residential rental >80%).
• Related party rules. Ensure compliance when sponsors and CDEs share ownership or control.
• Subsidy layering. Coordinate with LIHTC, Historic Tax Credits, Opportunity Zones, or state credits while preventing double-counting of basis.
• Exit strategies. Typically after the seven-year compliance period, the investor exits via a put option; plan early for unwinding leverage debt or converting to conventional financing.

Engage experienced NMTC counsel, accountants, and consultants to navigate legal and tax complexities.

Closing timeline and documentation

Once allocation is secured and a project is selected, closing can take 90–150 days. Prepare for intensive documentation:

• Term sheets and commitment letters between CDE, investor, leverage lender, and QALICB.
• Appraisals and market studies to substantiate project viability.
• Environmental reviews (Phase I/II) to assess contamination risks.
• Construction contracts and guaranteed maximum price agreements for real estate projects.
• Legal opinions covering tax credit eligibility, corporate authority, and enforceability.
• Financial projections demonstrating debt service coverage and exit capacity.

Implement closing checklists with assigned owners for each document. Weekly closing calls keep parties aligned and ensure timely resolution of open items.

Compliance and asset management

During the seven-year compliance period, CDEs must maintain QEI and ensure QLICIs remain invested in qualified activities. Focus on:

• Quarterly monitoring. Collect financial statements, construction draws, job creation data, and impact metrics from QALICBs.
• Reporting to investors and the CDFI Fund. Submit Annual Reports (Form 8874-A) and Transaction Level Reports through AMIS.
• Substitution provisions. If a project underperforms, CDEs may redeploy QLICI proceeds into another qualified business within 12 months to avoid recapture.
• Compliance audits. Maintain documentation verifying location in LICs, use of proceeds, and adherence to community outcomes commitments.
• Community accountability. Hold advisory board meetings, solicit resident feedback, and adjust services as needed.

Failure to comply can trigger recapture of tax credits, so invest in robust asset management systems and staff training.

Measuring and communicating impact

NMTC stakeholders increasingly demand transparent outcomes. Develop an impact management plan that tracks:

• Permanent and construction job creation/retention, including wages and benefits.
• Access metrics: patient visits for health centers, students served by educational facilities, square footage of healthy food retail.
• Community wealth-building: minority-owned business participation, procurement from local suppliers, entrepreneurship support.
• Environmental benefits: brownfield remediation, energy efficiency improvements, green building certifications.

Share results through annual reports, dashboards, case studies, and media outreach. Demonstrated impact strengthens future allocation applications and investor relationships.

Advanced strategies to stay competitive

• Leverage non-federal capital. Blend Opportunity Zone equity, state NMTCs, or philanthropic recoverable grants to lower borrowing costs.
• Target special priorities. Design pipelines around tribal communities, disaster recovery zones, or childcare deserts aligned with federal initiatives.
• Offer operating support. Provide technical assistance, financial coaching, or grants to QALICBs alongside NMTC financing.
• Create revolving loan funds. Structure deals that recycle repayments into new QLICIs within the compliance window.
• Invest in data infrastructure. Implement systems like Impact Finance Center or Altum to streamline reporting and compliance.

Case study: Grocery-anchored community hub

A Midwestern CDE received $50 million in NMTC allocation and partnered with a regional grocer to build a 65,000-square-foot food center in a USDA-defined food desert. The $24 million project layered NMTC with city tax increment financing, philanthropic grants, and a loan from a mission-driven bank. The development includes a teaching kitchen, community health clinic, and coworking space for local entrepreneurs. Since opening, it created 120 permanent jobs with a living wage policy, delivered 4,500 nutrition education sessions, and increased fresh food access for 30,000 residents. Impact data helped the CDE secure another allocation in the subsequent round.

Frequently asked questions

Can small nonprofits apply for NMTC allocation? Yes, but they must demonstrate strong management capacity, community accountability, and realistic deployment strategies. Partnerships with experienced CDEs can strengthen applications.

What triggers tax credit recapture? Recapture occurs if the CDE loses certification, the investor redeems its QEI, or the CDE fails to invest substantially all (85%) of QEI in QLICIs during the compliance period.

Are housing projects eligible? Mixed-use projects with less than 80% residential rental space qualify. Pure residential rental projects should explore LIHTC instead.

How long does it take to close a transaction? Expect 3–5 months from term sheet to financial closing, depending on project readiness and partner experience.

Can NMTC finance working capital? Yes, QLICIs can support operating businesses with equipment purchases or working capital, provided funds are used in LICs.

Glossary

• Community Development Entity (CDE): Certified intermediary that applies for NMTC allocation and deploys QLICIs.
• Qualified Active Low-Income Community Business (QALICB): The operating business or project receiving NMTC financing.
• Qualified Equity Investment (QEI): Investment made into the CDE that generates tax credits.
• Qualified Low-Income Community Investment (QLICI): The loan or equity investment from the CDE to the QALICB.
• Severely Distressed Census Tract: LIC meeting heightened distress criteria (e.g., poverty ≥30%, unemployment ≥1.5× national rate).

Resources and data tools

• CDFI Fund NMTC Allocation Application guidance and webinars.
• AMIS user manuals for certification, allocation, and reporting.
• Novogradac NMTC mapping tool and industry updates.
• Opportunity Finance Network training on NMTC structuring and compliance.
• Community Indicators Consortium for impact measurement frameworks.

Search optimization guidance

Use keywords like “apply for NMTC allocation,” “New Markets Tax Credit structure,” “CDE pipeline development,” and “NMTC compliance checklist.” Include sector-specific modifiers (“NMTC for health clinics,” “rural NMTC projects”) to reach sponsors searching for tailored strategies.

Action checklist

1. Secure or maintain CDE certification with strong community accountability structures.
2. Build a pipeline of shovel-ready projects with documented community demand and financing gaps.
3. Draft a data-rich allocation application highlighting innovative products, severe distress targeting, and quantifiable outcomes.
4. Cultivate investor and leverage lender relationships to quickly convert allocations into closed transactions.
5. Implement rigorous compliance and impact monitoring systems to protect tax credits and demonstrate long-term value.

By aligning mission-driven projects with savvy structuring and disciplined compliance, organizations can harness the NMTC Program to deliver catalytic investments in communities that need them most.