New Markets Tax Credit (NMTC)

The New Markets Tax Credit (NMTC) is a US federal tax credit, created in 2000, that brings private capital into low-income communities. It works through a chain of three parties.

1. The CDFI Fund awards allocations of tax credit authority to Community Development Entities (CDEs). CDEs are certified organizations with a mission of serving low-income communities.
2. Investors, often banks, make Qualified Equity Investments (QEIs) in a CDE. In return, they claim a tax credit worth 39% of the investment over seven years: 5% a year for the first three years and 6% a year for the last four.
3. The CDE uses the money to make Qualified Low-Income Community Investments (QLICIs). These are usually loans to or investments in businesses and real estate projects in eligible low-income census tracts.

A simple example: an investor puts $10 million into a CDE and claims $3.9 million in credits over seven years. Because the credit provides much of the investor's return, the CDE can lend to a project at a lower rate or on softer terms than the market offers.

The program now has a steady footing. The One Big Beautiful Bill Act of 2025 made it permanent. In September 2026, the CDFI Fund opened the 2026 round with $5 billion in allocation authority. The Fund reports $91 billion in allocations across 21 rounds since the program began.

Why it matters for lenders

Many CDEs are tied to a Community Development Financial Institution (CDFI), a bank or a community developer. For them, NMTC deals can finance health centers, grocery stores, factories and other projects that are too large or too risky for their usual lending. Banks also use NMTC investments to support their goals under the Community Reinvestment Act (CRA).

The catch is compliance. Investors can lose credits if the CDE breaks program rules during the seven-year compliance period. CDEs therefore track deployment deadlines, census tract eligibility and reporting closely.

How it works in practice

A CDE uses part of its allocation to finance a new community health clinic. The deal combines the investor's equity with other loans, and the CDE makes loans to the company that owns the project. The CDE's asset manager sets the loans up in servicing, records the census tract and schedules interest-only payments for the seven-year period.

Each year, the CDE reports its investments to the CDFI Fund through AMIS (Awards Management Information System). It also sends investor reporting packages to the tax credit investor. When deal terms, tract data and payment history sit in separate files, seven years of tracking becomes error-prone, and a mistake can cost the investor its credits.