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Friday, March 26, 2010

New Markets Tax Credit: An Introduction

Donald J. Marples
Specialist in Public Finance

The New Markets Tax Credit (NMTC) is a non-refundable tax credit intended to encourage private capital investment in eligible, impoverished, low-income communities. NMTCs are allocated by the Community Development Financial Institutions Fund (CDFI), a bureau within the United States Department of the Treasury, under a competitive application process. Investors who make qualified equity investments reduce their federal income tax liability by claiming the credit. The NMTC program, enacted in 2000, is currently authorized to allocate $26 billion through the end of 2009. To date, the CDFI has made 396 awards totaling $26 billion in NMTC's allocation authority. 

In the 111th Congress, legislation is being considered to modify the NMTC program authorization. The American Recovery and Reinvestment Tax Act of 2009, P.L. 111-5, increases the NMTC allocation for 2008 and 2009, to $5 million from $3.5 million. Similarly, legislation in the 110th Congress focused primarily on extending the NMTC program authorization. This attention came to fruition with the enactment of P.L. 110-343, which extended the NMTC program authorization one year, through the end of 2009. Other legislation in the 111th Congress, H.R. 2628 and S. 1583, proposes to extend the NMTC for multi-year periods; H.R. 473 proposes to extend the NMTC to the insular areas; H.R. 4849 proposes to allow for the new markets tax credit to offset alternative minimum tax liability; and both the House- and Senate-passed versions of H.R. 4213 would extend the NMTC for one year and $5 million.

Date of Report: March 16, 2010
Number of Pages: 16
Order Number: RL34402
Price: $29.95

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