Spring 2007 issue of Horizons

INDUSTRy u

real estate

New Market Tax Credits

investment in a qualified CDE. A qualified CDE is one that has been certified by the Fund. The CDE must apply to the Fund and show that (i) its primary mission is serving or providing investment capital for low-income communities or low-income persons and (ii) it maintains accountability to residents of the low-income communities through its representation on a governing or advisory board. Once approved, the CDE must certify annually that it has continued to meet the certification requirements. When a CDE has been certified by the Fund, it is then eligible to apply to the Treasury Department for an allocation of NMTC investment authority. When a CDE has been awarded an NMTC allocation, it can seek equity investors who will invest in the CDE and receive the tax credits. Investors in a qualified CDE will receive tax credits for their investments. The tax credits are received over a seven- year period and equal 39 percent of the amount of their investment. In the year in which the equity investment in a CDE is made and for each of the next two years, the investor receives a tax credit of 5 percent of the invested amount. For the next four years, the investor receives a tax credit of 6 percent of the invested amount each year. The CDE must use substantially all, or 85 percent of aggregate gross assets, of cash invested in the CDE to make Qualified Low-Income Community Investments. A qualifying investment is generally a loan or equity investment in a qualified active low-income community business, which can be a for-profit or non-profit business that (i) must be located in a census tract with a poverty rate of at least 20 percent or a census tract with a median income that does not exceed 80 percent of the comparable area median and (ii) must have a substantial connection to that low-income community. Examples of qualifying businesses include: commercial businesses, health care facilities, childcare centers, commercial real estate located in the low-income community, QUALIFYING INVESTMENTS

HISTORY OF THE PROGRAM

On Dec. 21, 2000, the Community Renewal Tax Relief Act of 2000 was signed into law. This legislation included the creation of a New Markets Tax Credit program to encourage investment in low-income communities, which historically have not had access to the capital markets. The program is administered by the Community Development Financial Institutions Fund on behalf of the Treasury Department. The Fund was initially authorized to allocate tax credit authority for up to $15 billion of investments in community development entities, between 2000 and 2007, which would generate $5.85 billion in tax credits for use in making qualified low-income community investments. The Gulf Opportunity Zone Act was signed into law on Dec. 21, 2005. As part of the GO Zone legislation, Congress provided the Treasury Department with the authority to allocate an additional $300 million in NMTC authority for 2005, $300 million for 2006, and $400 million for 2007. The Fund used the authority granted by the program to combine the 2005 and 2006 amounts and thus made available an additional $600 million of NMTC allocation for specific use in the GO Zone, which was allocated in 2006. In December 2006, Congress passed the Tax Relief and Health Care Act, which included a one-year reauthorization of the NMTC program through 2008, with an additional $3.5 billion in credit authority.

COMMUNITY DEVELOPMENT ENTITIES (CDE)

To receive the tax credits, an investor must make an equity

33 u summer 2007 issue

Made with FlippingBook Online newsletter