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New Markets Credit


New Markets Credit

You can claim a tax credit for a qualified equity investment in a qualified community development entity (CDE) made after April 19, 2001. This is called the new markets credit.

Amount of credit.


You claim the credit over a period of 7 years until 2007. To find the amount of your credit each year, multiply the amount you paid the qualified CDE for your qualified equity investment by a percentage. The percentage is: Thus, the credit can be up to 39% of your investment over a 7-year period.
To claim the credit for a year, you must hold the qualified equity investment on the credit allowance date for that year. The credit allowance date is the date you make the initial investment and each of the next 6 anniversary dates.

How the new markets credit (NMC) works.


Qualified CDEs apply to the U.S. Department of Treasury's Community Development Financial Institutions (CDFI) Fund for an allocation of the new markets credit. A CDE will seek taxpayers to make qualifying equity investments in the CDE. The CDE will be required to use substantially all of the qualified equity investments to make qualified low-income community investments in qualified active low-income community businesses (QALICBs), discussed later. After the CDE is awarded a tax credit allocation, the CDE is authorized to allocate the tax credits to private equity investors in the CDE.

Qualified CDE.


A qualified CDE is any U.S. corporation or partnership that meets the following requirements.
Qualified CDEs also include specialized small business investment companies and community development financial institutions. For more information, see section 45D(c)(2) of the Internal Revenue Code.

Qualified equity investment.


Generally, this is the cost of any stock in a corporation or any capital interest in a partnership if the following requirements are met.

Qualified low-income community investment.


Generally, this means one of the following.
Any equity investment in, or loan to, any CDE may include a primary and second CDE to the extent that the second CDE uses the proceeds of the investment or loan. For details on the requirements that apply to CDEs making investments through multiple tiers of CDEs, see Notice 2003-64 on page 646 of Internal Revenue Bulletin 2003-39 at


This is any corporation (including a nonprofit corporation), partnership, or sole proprietorship, if all the following requirements are met for the tax year.
  1. At least 50% of its total gross income is from the active conduct of a qualified business (defined next) within a low-income community.
  2. At least 40% of the use of its tangible property (whether owned or leased) is within a low-income community.
  3. At least 40% of its employees' services are performed in a low-income community.
  4. Less than 5% of the average of the total unadjusted bases of the property of the entity is from:
    1. Nonqualified financial property (generally, debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, and annuities), or
    2. Collectibles not held primarily for sale to customers in the ordinary course of its business.
Also, a sole proprietorship that would qualify if it were separately incorporated is treated as a qualified active low-income community business.

Qualified business.

This is generally any trade or business except one that consists primarily of developing or holding intangibles for sale or license. However, the rental to others of real property located in a low-income community is a qualified business only if the property is not residential rental property and there are substantial improvements located on the property. Also, a qualified business does not include any business listed earlier in item (5) or item (6) under Nonqualified employees in the Empowerment Zone Employment Credit section.

Low-income community.

A low-income community generally means any population census tract if any of the following apply.

CDE designations of qualified equity investments.


Generally, a qualified CDE can designate an equity investment as a qualified equity investment only if it applied for and received a new markets credit allocation and entered into an allocation agreement with the CDFI Fund before the investment was made.


An equity investment in an entity is eligible to be designated as a qualified equity investment if made prior to an allocation agreement only if one of the following applies.

NMC Allocations.


NMCs are allocated annually by the CDFI Fund to CDEs under a competitive application process. The maximum amount of qualified equity investments designated by the qualified CDE cannot exceed the amount of the allocation received from the CDFI Fund. The U.S. Department of Treasury awarded to 66 entities on March 14, 2003, the first $2.5 billion in tax credit allocations under the NMC program. These entities are listed in Table 4, below. For information about future NMC allocations, see the CDFI fund website at
Table 4. 2002 New Markets Credit Allocation Awardees
Name of AwardeeCity and StateCredit Allocation 
Alaska Growth Capital BIDCO, Inc.Anchorage, AK$5,000,000 
Advantage Capital Community Development Fund, L.L.New Orleans, LA$110,000,000 
ASB Community Development CorpPortsmouth, OH$2,000,000 
Bethel New Life, Inc.Chicago, IL$4,000,000 
Border Communities Capital Company, LLCSolana Beach, CA$50,000,000 
Cahaba Community Development, LLCBirmingham, AL$40,000,000 
Campus Partners for Community Urban RedevelopmentColumbus, OH$35,000,000 
CBSI Development Fund, Inc.New Albany, IN$3,000,000 
Central Ohio Loan Services, Inc.Waverly, OH$6,000,000 
CFBanc CorporationWashington, DC$73,000,000 
Citizens Business Development Company, LLCJackson, KY$3,000,000 
Citizens Tri-County Development CorporationDunlap, TN$1,000,000 
Clearinghouse CDFILake Forest, CA$56,000,000 
Cleveland New Markets Investment Fund LLCCleveland, OH$15,000,000 
CNC Development Foundation, Inc.Paintsville, KY$2,000,000 
Coastal Enterprises, Inc.Wiscasset, ME$65,000,000 
Community Development Funding, LLCClarksville, MD$25,000,000 
Community Development New Markets I LLCCleveland, OH$150,000,000 
Community Economic Redevelopment CorporationChicago, IL$6,000,000 
Community Loan Fund of New Jersey, Inc.Trenton, NJ$15,000,000 
Community Trust Community Development CorporationPikeville, KY$7,000,000 
Community Ventures Corporation, Inc.Lexington, KY$12,000,000 
Delaware Community Investment Corporation (DCIC)Wilmington, DE$15,000,000 
Eclypse Development Partners I LLCAtlanta, GA$22,000,000 
Empowerment Reinvestment Fund, LLCNew York City, NY$10,000,000 
Enterprise Corporation of the DeltaJackson, MS$15,000,000 
ESIC New Markets Partners Limited PartnershipColumbia, MD$90,000,000 
First State Development Corp.Union City, TN$7,000,000 
Greater Jamaica Local Development Company, Inc.Jamaica, NY$21,000,000 
GS New Markets FundNew York, NY$75,000,000 
HEDC New Markets, Inc.New York, NY$30,000,000 
Illinois Facilities Fund, TheChicago, IL$10,000,000 
Impact Community Capital CDE, LLCSan Francisco, CA$40,000,000 
Impact Seven, Inc.Almena, WI$21,000,000 
KHC New Markets CDE, LLC Series ACarlsbad, CA$134,000,000 
LA Charter School New Markets CDE LLCSanta Monica, CA$36,000,000 
Lenders for Community DevelopmentSan Jose, CA$25,000,000 
Liberty Bank and Trust CompanyNew Orleans, LA$50,000,000 
Local Initiatives Support Corporation (LISC)New York, NY$65,000,000 
MetaFund CorporationOklahoma City, OK$54,000,000 
MHIC, LLCBoston, MA$25,000,000 
Mid-City Community CDE, LLCSilver Spring, MD$36,000,000 
National Community CapitalPhiladelphia, PA$8,000,000 
National New Markets Tax Credit Fund, Inc.Minneapolis, MN$162,500,000 
National Trust Community Investment CorporationWashington, DC$127,000,000 
Neighborhood BancorpNational City, CA$5,000,000 
New Markets Community Capital, LLCLos Angeles, CA$30,000,000 
Norfolk Redevelopment & Housing AuthorityNorfolk, VA$15,000,000 
North Coast Community Development CorporationLorain, OH$9,000,000 
Northside Community Development FundPittsburgh, PA$500,000 
Nuestra Development FundRoxbury, MA$1,000,000 
Ohio Community Development Finance FundColumbus, OH$15,000,000 
Paramount Community Development Fund, LLCGranville, OH$75,000,000 
Phoenix Community Development and Investment CorporationPhoenix, AZ$170,000,000 
Prince George's Community Capital CorporationLargo, MD$10,000,000 
REI New Markets Investment, LLCDurant, OK$80,000,000 
Rural Community Assistance CorporationWest Sacramento, CA$8,000,000 
Self-Help Ventures FundDurham, NC$75,000,000 
Southeast Indiana Community DevelopmentDillsboro, IN$3,000,000 
Southern Appalachian FundOak Ridge, TN$2,000,000 
The Association For Theater-Based Community DevelopmentColumbus, OH$6,000,000 
Urban Development Fund, LLCChicago, IL$15,000,000 
Wachovia Community Development Enterprises, LLCCharlotte, NC$150,000,000 
West Virginia Community Development Loan Fund, Inc.Barboursville, WV$4,000,000 
WNC National Community Development Advisors, LLCCosta Mesa, CA$50,000,000 
123 New Market Investors LLCWashington, DC$13,000,000 



The credit is recaptured if, within the 7-year credit period, the CDE is no longer qualified, substantially all of the proceeds of the investment are no longer used for a qualifying purpose, or the investment is redeemed.

Claiming the credit.


Use Form 8874 to claim this credit.

More information.


For more information about the new markets credit, see section 45D of the Internal Revenue Code and the regulations under that section.
previous pagePrevious Page: Publication 954 - Tax Incentives for Empowerment Zones and Other Distressed Communities - New York Liberty Zone
next pageNext Page: Publication 954 - Tax Incentives for Empowerment Zones and Other Distressed Communities - Tax-Exempt Bond Financing
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication