The One Big Beautiful Bill Act (OBBBA) touches many areas of the Internal Revenue Code, but one that’s getting less attention is Section 45D, the New Markets Tax Credit program (NMTC). This program seeks to encourage investment in low-income areas by providing a tax credit to those who provide funding for significant projects in those areas. Congress made two changes to support investment in low-income areas for many years to come.
Background
About 25 years ago, Congress created the NMTC to encourage investment in areas where those with the means to provide support might otherwise be disinclined from making an investment. The program is administered by the Community Development Financial Institutions (CDFI) Fund of the U.S. Treasury Department and receives a $5 billion allocation annually. There are three key parties to the program:
- Investors, who get a federal income tax credit worth 39% of their investment.
- Community Development Entities (CDEs), who are certified by the CDFI to provide investment capital as part of their mission to help low-income communities.
- Businesses looking for funding for projects that will benefit their community.
The program has a plethora of rules that establish when an investment qualifies for the credit, what communities qualify as low-income, what businesses are eligible to receive funds from a CDE, and what happens if the business fails to use the funds as required. Overall, it’s a win for investors, businesses looking to fund projects, and the low-income community.
OBBBA Changes
The major news from the OBBBA was making the NMTC permanent, as it was set to expire after 2025. In addition, any unused amount of the $5 billion annual allocation can be carried forward for up to 5 years. For example, $1 million unused from the 2026 allocation can be used at any point through 2031.
These changes provide additional certainty for investors and businesses alike. Investors now know they can continue utilizing the credit offered for their investments in perpetuity. Businesses know the money for projects will be there as well, and may even have more funds available than prior to the OBBBA.
Conclusion
The NMTC can have a tremendous benefit for businesses looking to invest in projects that will strengthen their low-income communities by providing additional jobs, housing, or other resources. If your business needs additional funding and you think you may qualify for NMTC funding, please reach out to a BrownWinick attorney to discuss whether your project is a good fit, and we can help connect you to a CDE.
