Treasury and the Community Development Financial Institutions (CDFI) Fund announced $10 billion in New Markets Tax Credit allocations last week. This round of awards represents a 20% increase in rural and non-metro community investments, according to Treasury.
Background
The New Markets Tax Credit, under IRC § 45D, is intended to encourage investment in low-income communities. Taxpayers who make qualified equity investments in certified community development entities may be entitled to claim the credit as part of the IRC § 38 general business credit.
To be a qualified equity investment, a community development entity must receive an allocation from the IRS and use substantially all cash funds from the investment for qualified low-income community investments.
The New Market Tax Credit program has an annual cap on qualifying equity investments, with the IRS and Community Development Financial Institutions Fund allocating the capped amount among qualified entities through a competitive application process. The cap (after 2019) is $5 billion per calendar year.
The New Market Tax Credit was made permanent under the One Big Beautiful Bill Act. That law also established a five-year carryforward for unused credits. Pre-OBBB, the carryforward period was through 2030 for all credits allocated in calendar years before 2026.
2024-2025 Allocation
Treasury referred to the latest round of allocations as a “double round” in a December 23 press release, because funding was provided for combined 2024-2025 calendar years. Application for the two-year allocation opened in November 2024.
According to the CFDI Fund’s Award Book, this round included 142 allocations spanning 41 states, Puerto Rico, and the District of Columbia. The bulk of the allocations – 85% – will likely be used for loans to or investments in businesses located in low-income communities. The remaining 15% is expected to be used for real estate projects in low-income communities.
And while the majority of investment areas are urban, the Award Book indicates that over $2.4 billion has been allocated to benefit rural areas. This exceeds the $1.9 billion rural investment baseline level.
The CDFI Fund also shared an overview of the allocation review process, noting that it received 216 applications requesting a total of $19.2 billion. The overview runs through the “characteristics” of high-ranking applications. The CFDI Fund looked at applicants’ business strategy, including prior performance, and their “track record” of assisting disadvantaged businesses and communities.
The CFDI Fund also assessed “community outcomes,” which include whether applicants would provide at least 85% of qualified low-income community investments in areas of “severe distress” or with multiple indicia of distress, and at least 20% to areas in “deep distress.” In addition, applicants were ranked according to how their investment would benefit low-income individuals, their tracking methodologies, and their record of “community engagement.”
Future Allocations
Though the New Markets Tax Credit is permanent, Treasury did not share details for applicants seeking funding in future rounds. It did, however, share broad principles for the next cycle.
Treasury intends to focus on “lasting job creation” now that the program is permanent – including via support for small businesses and domestic manufacturing. It also plans to prioritize applications to boost affordable housing development and rural hospital and essential community health infrastructure.
In addition, Treasury indicated it will modify allocation agreements to “ensure compliance with federal anti-discrimination laws” and President Trump’s executive orders.
For more on the New Markets Tax Credit, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-17920.
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