The credit provides an incentive for investment in low-income communities. The U.S. Department of the Treasury competitively allocates tax credit authority to intermediaries that select investment projects. Investors receive a tax credit against their federal income tax. NMTC investors provide capital to community development entities (CDEs), and in exchange are awarded credits against their federal tax obligations.
Investors can claim their allotted tax credits in as little as seven years - 5% of the investment for each of the first three years and 6% of the project for the remaining four years - for a total of 39% of the NMTC project. A CDE can be its own investor or find an outside investor. Investors are primarily corporate entities-often large international banks or other regulated financial institutions-but any entity or person is eligible to claim NMTCs.