What is the New Markets Tax Credit?

Nonprofits play a critical role in supporting underserved communities, but securing funding for expansion and operations remains a common challenge. The New Markets Tax Credit (NMTC) program, established by Congress in 2000, provides a significant financial incentive to encourage investments in low-income communities. Through NMTC, nonprofits can attract private capital to fund projects that generate jobs, provide community services, and enhance local economies.

How Does the NMTC Program Work?

The NMTC program allows investors to receive a tax credit against federal income taxes for investments in designated Community Development Entities (CDEs), which then allocate funds to qualifying projects. Nonprofits that meet eligibility criteria—typically by operating in economically distressed areas—can benefit from these investments in various ways, including expanding services in low-income communities, financing for real estate projects, facility expansions, or infrastructure improvements.

The tax credit totals 39% of the original investment amount, spread over seven years, making it a compelling option for investors and a powerful tool for nonprofits seeking funding sources beyond traditional grants and donations.

How Nonprofits Can Leverage NMTC Funding

To maximize the potential of NMTC, nonprofits should:

  • Determine eligibility – Projects must be in designated low-income census tracts and provide substantial benefits to residents.
  • Engage with a Community Development Entity (CDE) – CDEs facilitate NMTC financing and work with organizations to structure deals. Organizations can receive investment funds from CDEs, in the form of loans or equity investments, or partner with CDEs on collaborative projects.
  • Develop a compelling project plan – Organizations can partner with CDEs in applying for NMTC allocations by providing community impact data and demonstrating community support and engagement for a project, both of which can be critical in the allocation of NMTC funds.

Examples of NMTC in Action

Many nonprofit organizations have successfully leveraged NMTC to fund community health centers, charter schools, job training facilities, and food distribution centers. For example, a nonprofit operating a food bank in a low-income area may qualify for NMTC funding to construct a larger warehouse, expanding its capacity to serve more families in need.

The Future of the New Markets Tax Credit

The NMTC limitation for each calendar year is outlined under Section 45D(f)(1).  From 2020 through 2025, this limitation is set at $5 billion annually, with no further allocations available after 2025.  Consequently, the Secretary of the Treasury will be unable to allocate new NMTCs to Community Development Entities beyond 2025.  Under current law, entities that have not secured allocations by the end of 2025 will be unable to apply for or receive new NMTC allocations.

However, there is ongoing legislative activity aimed at extending the program. The New Markets Tax Credit Extension Act of 2025 (S.479), introduced in the Senate in early 2025, seeks to make the NMTC permanent. Historically, the NMTC has been extended multiple times through legislative action, reflecting a strong interest by Congress in continuing the program beyond its current expiration date.  These efforts underscore the importance and impact of the NMTC in fostering community development and economic growth.

Unlock New Funding Opportunities for Your Nonprofit

If your nonprofit is considering expansion or infrastructure improvements, the New Markets Tax Credit could be the solution you need. Contact us today to explore how we can help you discover new funding opportunities and maintain financial resilience.