In the Spring, the New Market Tax Credit Extension Act of 2021 (H.R. 1321/S. 456) was introduced in both the Senate and the House. If enacted, this Act would make the NMTC program permanent at $5 billion in credit allocation annually.
Fortunately, the federal government has attempted to support the neediest areas with the Consolidated Appropriations Act of 2021 (the “Act”). As a result, a new round of New Market Tax Credit allocations is on the way. If you are a Qualified Active Low-Income Business (QALICBs) interested in an NMTC transaction, Savage & Associates can provide all the assistance necessary to close your NMTC transaction.
Signed into law on December 27, 2020, the Act includes a five-year, $25 billion extension of the New Market Tax Credit (NMTC) program, the largest extension in the history of the program. After much success helping low-income communities, largely through bipartisan support in Congress, the NMTC program was scheduled to expire on December 31, 2020. Under the Act, the NMTC program is now scheduled to expire on December 31, 2025.
There are many benefits to making the NMTC a permanent part of the Tax Code (Internal Revenue Code). A primary benefit is the certainty and reassurance that investors would continue to receive tax benefits from their participation in the NMTC program. This would allow the dedication of more resources to the NMTC program, which would result in greater community development achievements.
The economic slide caused by the pandemic has made the financing of qualified businesses increasingly complex. At Savage & Associates, we take great pride in our ability to help our clients structure creative, cutting-edge transactions that overcome many market challenges, especially those presented by unforeseen events like the pandemic. These innovative transactions ensure that as much allocation as possible is generated from NMTCs to provide optimal effects to qualified active low-income community businesses.
The law as it currently stands requires investors to reduce the adjusted basis of a qualified equity investment by an amount equal to the number of credits taken over seven years. Investors are required to pay taxes on any capital gains or profits generated through a qualified equity investment.
Eliminating the basis reduction would make the after-tax credit percentage close to the full 39 percent after-tax credit percentage. This reduction would place the NMTC on equal footing with the Low-Income Housing Tax Credit, Housing Tax Credit, and Renewable Energy Tax Credit.
Permanence would also result in driving up NMTC equity pricing, therefore facilitating more NMTC allocation to flow to low-income community businesses for each tax credit dollar. Also, indexing annual NMTC allocation authority to inflation in the marketplace would maintain the NMTC’s value, while providing parity with the LIHTC, tax-exempt private activity bonds, as well as other important tax incentives.
Let’s Work Together to Develop our Communities
Our founder, Dionne Savage-Williams, is a frequent speaker and presenter at NMTC seminars who is readily available to inform anyone interested in New Market Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools. At Savage & Associates, we move forward hand in hand with clients so they may successfully close their NMTC transactions. We know how daunting the NMTC allocation process can be for participants. Savage and Associates inform and prepare clients so that they are in the best position possible to use the NMTC program to create positive change in our communities.
If you have any questions about New Market Tax Credits or any other development financing program, call 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. You can also visit our website at Savage & Associates 24 hours a day, seven days a week for more information.