A project may receive an investment of up to 39% of its total project costs. An investor will then be able to claim that total amount over seven years on their taxes by taking 5% in years 1-3, and 6% in years 4-7, totaling 39%. As such, projects need to have roughly 65%-80% of funding from a source other than New Markets Tax Credits.
Requirements for Funding
The project must be located within a census tract that qualifies, either by experiencing 20% poverty or more, or with a median family income of 80% or less in the area. Projects that are not located in these census tracts can also qualify by one of the following methods:
- 50% of customers are low-income
- 40% of employees are low-income
- 50% of owners are low-income
Each of these methods must be verified by tax returns.
Projects have substantial restrictions placed upon them by the New Markets Tax Credits program. First, the projects must often be completed within 24 months of closing a New Markets transaction. Then, for seven (7) years (regularly called the compliance period), the project must not change its structure, move its location, or otherwise fundamentally change its operations.
For example, a medical clinic inside a qualifying census tract that received New Markets financing must remain in its location for seven (7) years, and regularly report to its financing partners its job creation, financial condition, and certify it has complied with IRS regulations governing New Markets Tax Credits.
Not every business is a good fit for New Markets Tax Credits, but for some the program injects vital capital that can make the difference between starting up with enough capital to ensure smooth operations, and not starting up at all.