Tax credit financing has become essential for preserving historic buildings and revitalizing economically distressed communities across the United States. Two prominent federal programs—the New Markets Tax Credit (NMTC) and the Historic Tax Credit (HTC)—offer substantial incentives that make otherwise unfeasible projects financially viable. While these programs sometimes collaborate on projects involving historic buildings in low-income communities, their application processes differ fundamentally in terms of structure, requirements, and complexity.
Fundamental Program Structure and Applicant Identity
The most fundamental difference lies in who is eligible to apply for the tax credits. The HTC program involves property owners applying directly to the National Park Service (NPS) for certification that their rehabilitation project meets program standards. The property owner seeking to claim the tax credit is the applicant, creating a direct relationship between the applicant and the certifying authority.
The NMTC program operates through an intermediary structure, where Community Development Entities (CDEs) apply to the Community Development Financial Institutions Fund (CDFI Fund) for tax credit allocation authority, rather than for specific projects. Individual businesses and projects don’t apply for NMTCs directly. Instead, qualified active low-income community businesses (QALICBs) seek financing from CDEs that have already received allocations.
This two-stage process—CDEs applying for allocations, then businesses applying to CDEs for financing—fundamentally changes the application dynamic. HTC applicants engage directly with federal authorities throughout the certification process, while NMTC applicants primarily engage with CDEs and only indirectly interact with the CDFI Fund through their CDE partner.
Application Timing and Competitive Dynamics
The HTC program operates on a non-competitive, as-of-right basis. Any property owner with a certified historic structure who undertakes a substantial rehabilitation that meets the Secretary of the Interior’s Standards for Rehabilitation can claim a 20% tax credit. There are no annual caps on total credits available, no competitive application rounds, and no risk of being denied credits simply because demand exceeds supply. Applications can be submitted at any time, and the NPS reviews them in the order received according to established timelines.
The NMTC program operates through highly competitive allocation rounds. The CDFI Fund periodically announces funding competitions where CDEs submit applications for allocation authority. In recent years, demand has substantially exceeded available allocations, with the CDFI Fund receiving applications for several times the amount of authority available. This competition means many qualified CDEs don’t receive allocations despite submitting strong applications.
This competitive dynamic creates uncertainty that doesn’t exist in the HTC program. A business seeking NMTC financing must find a CDE partner willing to support the project, but that CDE must also have allocation authority available. Projects may face delays or an inability to access NMTC financing if their CDE partner lacks allocation or fails to secure new allocation in competitive rounds. Working with experienced NMTC consultants helps navigate these allocation cycles effectively.
Application Documentation and Technical Requirements
The HTC application process requires submitting three sequential parts to the NPS. Part 1 evaluates whether the building qualifies as a certified historic structure. Part 2 describes the proposed rehabilitation work and its compliance with preservation standards, including detailed plans, specifications, and photographs. Part 3 documents the completed rehabilitation work, demonstrating that the construction adhered to approved plans and meets preservation standards.
NMTC applications to CDEs involve entirely different documentation focused on financial viability, community impact, and qualification requirements. NMTC applicants must provide comprehensive business plans, detailed financial projections, market studies, organizational documents, management team backgrounds, and documentation proving QALICB qualification.
The NMTC application requires demonstrating that the project is located in a qualified low-income community using census tract data, that the business meets the substantially all test requiring 85% of NMTC proceeds to be used in qualifying ways, and that the business doesn’t engage in prohibited activities. Financial documentation must prove the business can service debt, maintain operations throughout the seven-year compliance period, and generate sufficient cash flow to support the financing structure.
Unlike the HTC’s focus on preservation standards and building-specific requirements, NMTC applications emphasize financial underwriting, community impact metrics, job creation projections, and economic development outcomes. CDEs evaluate applications using investment criteria similar to conventional lenders but with additional emphasis on mission alignment and community benefit.
Geographic Requirements and Project Location
The HTC program’s geographic requirements focus exclusively on whether the building is a certified historic structure, which depends on its architectural and historical significance rather than the economic characteristics of its location. Historic buildings in affluent neighborhoods and economically distressed areas both qualify if they meet certification requirements.
NMTC eligibility depends fundamentally on project location within a qualified low-income community. Census tracts qualify if they have poverty rates of at least 20% or median family income at or below 80% of the greater of metropolitan area or statewide median family income. This geographic targeting is non-negotiable—projects outside qualified census tracts cannot access NMTC financing regardless of their other merits.
This difference means HTC and NMTC programs serve different geographic footprints. The HTC program operates wherever historic buildings exist, while the NMTC program specifically targets economically disadvantaged areas, concentrating capital flows where poverty creates barriers to conventional investment. Projects involving historic buildings in low-income communities may qualify for both programs simultaneously.
Cost Requirements and Qualification Thresholds
The HTC program includes a substantial rehabilitation test requiring that rehabilitation expenditures during a 24-month measuring period exceed the greater of the adjusted basis of the building (excluding land) or $5,000. This requirement ensures meaningful rehabilitation rather than superficial repairs, though the $5,000 threshold creates accessibility for smaller projects.
NMTC financing doesn’t include comparable minimum expenditure requirements, but practical minimum project size thresholds exist due to transaction costs. Most NMTC transactions require total project costs of at least $5 million to $10 million to justify the legal, accounting, and compliance costs associated with complex NMTC structures. These transaction costs can range from $250,000 to $500,000 or more, making smaller projects economically impractical.
This difference means the HTC program can accommodate smaller rehabilitation projects, while NMTC financing typically serves larger projects regardless of whether they involve building rehabilitation, equipment purchases, or working capital. Reviewing successful community project financing examples demonstrates how these thresholds impact project feasibility.
Compliance and Ongoing Obligations
Once HTC certification is complete, the property owner must comply with a five-year recapture period during which the building must remain in qualified rehabilitation use. Beyond this recapture period, no ongoing compliance obligations exist.
NMTC compliance extends for seven years with substantial ongoing obligations. Throughout this compliance period, businesses must maintain QALICB status, satisfy the substantially-all test, submit to periodic compliance audits, and avoid triggering recapture events. These requirements create administrative burdens and restrict business flexibility beyond what HTC compliance requires.
NMTC compliance failures affect not just the business but also the CDE and investors who claimed tax credits, creating complex liability and oversight relationships. CDEs actively monitor NMTC investments throughout the compliance period, conducting site visits, reviewing financial statements, and ensuring ongoing qualification. This active oversight contrasts with the HTC program’s more passive post-certification compliance structure.
Professional Expertise and Advisory Requirements
HTC applications typically require engaging preservation architects or consultants familiar with the Secretary of the Interior’s Standards for Rehabilitation. While legal and tax advisors may be involved in structuring the tax credit investment, the core application expertise involves preservation rather than finance. HTC projects might spend $25,000 to $75,000 on preservation consulting and architectural fees.
NMTC applications require teams of specialized professionals including tax attorneys experienced with NMTC regulations, accountants familiar with tax credit structures, financial advisors understanding CDFI and community development finance, and compliance consultants. NMTC transactions commonly incur $250,000 to $500,000 in professional fees, reflecting the greater structural complexity compared to HTC certifications.
Combining Programs for Maximum Benefit
Despite their differences, the NMTC and HTC programs can work synergistically on projects involving historic building rehabilitation in low-income communities. A developer might pursue HTC certification through the standard NPS process while simultaneously seeking NMTC financing from a CDE to support rehabilitation costs and related project expenses.
Layering these programs requires coordinating their distinct application processes, compliance requirements, and timelines. Developers must satisfy both NPS preservation standards and CDE underwriting criteria, meet both programs’ qualification requirements, and structure financing to accommodate both tax credit mechanisms.
Projects successfully combining HTCs and NMTCs demonstrate the complementary nature of these programs despite their different application processes. The HTC provides credits based on rehabilitation expenditures and preservation standards, while the NMTC provides financing access and below-market capital costs based on location and community impact. Together, they can make transformative historic preservation projects feasible in economically distressed communities where either incentive alone would be insufficient.
Understanding how these application processes differ enables developers and community development professionals to navigate each program effectively and recognize opportunities to leverage both incentives. For guidance on structuring projects that combine these programs, contact experienced advisors who can optimize your capital stack for maximum benefit and community impact.