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Monday, January 14, 2013

New Markets Tax Credit: An Introduction

Donald J. Marples
Section Research Manager

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 $33 billion through the end of 2011. To date, the CDFI has exhausted 664 awards totaling $33 billion in NMTC allocation authority. In spite of this, demand for allocations remains strong. For the 2012 NMTC round, requests of nearly $22 billion were made, though any awards are subject to congressional action extending or reauthorizing the program.

The most recent program extensions were made in the 111th Congress. The American Recovery and Reinvestment Tax Act of 2009, P.L. 111-5, increased the NMTC allocation for 2008 and 2009 to $5 billion from $3.5 billion. Further, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) extended the NMTC authorization through 2011 at $3.5 billion per year.

In the 112th Congress H.R. 2655 and H.R. 3224 would both extend the NMTC through 2016 with allocation authority of $5 billion and $10 billion, respectively, while S. 3521 would extend the NMTC for two years with allocation authority of $3.5 billion per year.

Date of Report: December 20, 2012
Number of Pages: 11
Order Number: RL34402
Price: $29.95

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