NEW MARKET TAX CREDITS
Making every dollar count
As part of the Community Renewal Tax Relief Act of 2003, the Federal Government instituted this program to allow investors in low and moderate income areas to receive a 39% Federal Tax Credit over seven years.
The credit is earned when investors make a Qualified Equity Investment (QEI) into a certified Community Development Entity (CDE). CDE’s compete each year to receive allocation from the Federal Government to distribute these credits.
The credit is fully transferable and can be allocated to any party participating in a qualifying transaction. These credits can also be sold and therefore monetized. Eligible investment is for any activity except rental housing.
The Role of CIDC
In partnership with Boscov’s Department Stores, CIDC has received New Market Tax Credit Allocations for projects in Pennsylvania, New York, Delaware, Maryland and New Jersey. William Loewenstein, the president of CIDC is also the president of the CDE, which has received the tax credits and should be contacted regarding any projects that require funds.
A developer is constructing a $70 million mall in a NMTC qualified area. The developer is able to obtain $60 million in financing but needs an additional $10 million dollars in equity.
Solution: If it is arranged for the $60 million to go into a CDE first, the CDE can allocate a 39% tax credit, or any portion of the credit, back to the developer and/or the bank. This would result in a $23 million Federal Tax Credit that is earned over the next seven years and is completely transferable.