Tax credit financing has become an essential tool for preserving historic buildings and revitalizing economically distressed communities across the United States. Two prominent federal tax credit programs—the New Market Tax Credit (NMTC) program and the Historic Tax Credit (HTC) program—offer substantial incentives that make otherwise unfeasible projects financially viable. While these programs sometimes work together on projects involving historic buildings in low-income communities, their application processes differ fundamentally in structure, requirements, and complexity. Understanding how do New Market Tax Credits differ from Historic Tax Credits in their application helps developers, investors, and community development professionals navigate these programs effectively and determine which financing strategy best suits their projects.
Fundamental Program Structure and Applicant Identity
The most fundamental difference between NMTC and HTC application processes lies in who actually applies for the tax credits and how the application relates to the project receiving financing. 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, not 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.
This structural difference means 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. The HTC process centers on meeting technical preservation standards established by the Secretary of the Interior, while the NMTC process centers on meeting CDE investment criteria and demonstrating community impact within low-income communities.
Application Timing and Competitive Dynamics
How do New Market Tax Credits differ from Historic Tax Credits in their application regarding timing and competition? 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 meeting the Secretary of the Interior’s Standards for Rehabilitation can claim the 20% tax credit, subject to meeting all program requirements. 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. This predictability allows developers to incorporate HTCs into project financing with confidence that credits will be available if technical requirements are met. Project timing depends primarily on completing rehabilitation work and obtaining certifications rather than waiting for competitive allocation decisions.
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 to award. 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—either from a current allocation or by successfully competing for a new one. Projects may face delays or inability to access NMTC financing if their CDE partner lacks allocation or fails to secure new allocation in competitive rounds.
Furthermore, CDEs that receive allocations typically have three years to deploy that capital, creating pressure to close transactions within specific timeframes. Businesses seeking NMTC financing must align their project timelines with CDE allocation cycles and deployment schedules, adding complexity that HTC applicants don’t encounter.
Application Documentation and Technical Requirements
The HTC application process requires submitting three sequential parts to the NPS, each focusing on different aspects of the rehabilitation. Part 1 evaluates whether the building qualifies as a certified historic structure, either through individual listing on the National Register of Historic Places or location within a registered historic district and certification as contributing to that district’s historic significance.
Part 2 describes the proposed rehabilitation work and its compliance with the Secretary of the Interior’s Standards for Rehabilitation. This submission includes detailed plans, specifications, and photographs showing existing conditions and proposed changes. The NPS reviews this documentation to ensure the rehabilitation will preserve the building’s historic character and significant features. Applicants often engage preservation consultants or architects experienced with historic rehabilitation to prepare compliant designs and documentation.
Part 3 documents the completed rehabilitation work, demonstrating that construction followed approved plans and continues to meet preservation standards. This final certification is necessary to claim the tax credit and requires photographs, descriptions of work performed, and certification that expenditures meet the substantial rehabilitation test requiring rehabilitation expenses to exceed the greater of the adjusted basis of the building or $5,000.
Understanding how do New Market Tax Credits differ from Historic Tax Credits in their application includes recognizing that NMTC applications to CDEs involve entirely different documentation focused on financial viability, community impact, and qualification requirements rather than preservation standards. 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.
Review Process and Decision-Making Authority
The HTC program’s review process involves technical evaluation by NPS preservation specialists who assess whether proposed and completed work meets the Secretary of the Interior’s Standards for Rehabilitation. These standards provide objective criteria for evaluating rehabilitation work, focusing on preserving historic materials and character-defining features, maintaining historic spatial relationships, and ensuring new work is compatible with the building’s historic character.
The NPS review process, while rigorous, follows established standards and precedent. Applicants receive feedback on their proposals and can modify plans to achieve compliance. The review focuses on technical preservation matters rather than subjective judgments about project merit or community impact. If work meets the standards and other technical requirements are satisfied, certification is granted.
The NMTC application review conducted by CDEs involves more subjective evaluation of project merit, community impact, financial viability, and alignment with the CDE’s mission and investment strategy. CDEs have significant discretion in selecting projects to support, considering factors including job creation quality, community benefits, financial returns, risk profile, and strategic fit with their portfolio.
Different CDEs may evaluate the same project differently based on their investment criteria, geographic focus, industry specialization, and available allocation. A project one CDE declines might be attractive to another CDE with different priorities or capabilities. This subjectivity contrasts with the HTC program’s more objective technical standards, though both programs ultimately require meeting specific statutory and regulatory requirements.
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 for HTCs if they meet certification requirements. The program doesn’t incorporate income-based or poverty-based geographic targeting.
How do New Market Tax Credits differ from Historic Tax Credits in their application regarding location 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, spanning urban and rural areas, wealthy and economically distressed communities. The NMTC program specifically targets economically disadvantaged areas, concentrating capital flows where poverty and low income create barriers to conventional investment.
Projects involving historic buildings in low-income communities may qualify for both programs simultaneously, but the application processes remain distinct. Developers must pursue separate certifications and meet different geographic qualification requirements for each program, though the same project can benefit from both incentives if structured properly.
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 that projects involve meaningful rehabilitation rather than superficial repairs, though the $5,000 threshold creates accessibility for smaller projects if they have low basis in their buildings.
The adjusted basis requirement typically means that projects involving recently purchased buildings or buildings with significant prior improvements require substantial expenditures to qualify. Conversely, buildings acquired long ago or with low basis may qualify with more modest rehabilitation spending. The test focuses exclusively on qualified rehabilitation expenditures directly related to the historic building, excluding acquisition costs, personal property, and work on new additions.
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, which can range from $250,000 to $500,000 or more, make smaller projects economically impractical.
This difference means the HTC program can accommodate smaller rehabilitation projects that meet the substantial rehabilitation test, while NMTC financing typically serves larger projects regardless of whether they involve building rehabilitation, equipment purchases, working capital, or other capital needs. A $2 million historic building rehabilitation might access HTCs but struggle to justify NMTC transaction costs, while a $10 million historic rehabilitation could potentially layer both incentives for maximum benefit.
Compliance and Ongoing Obligations After Application
Once the HTC application process is complete and Part 3 certification is obtained, the property owner must comply with a five-year recapture period during which the building must remain in qualified rehabilitation use. If the property is sold or converted to non-qualifying use during this period, a portion of the claimed credit must be repaid on a sliding scale. Beyond this recapture period, no ongoing compliance obligations exist.
The HTC program also requires that properties preserve their historic character throughout the recapture period. Alterations made during this timeframe should maintain compliance with preservation standards, though post-certification changes don’t require formal NPS approval unless the owner seeks additional tax credits for subsequent rehabilitation work.
Understanding how do New Market Tax Credits differ from Historic Tax Credits in their application must include recognizing that 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 and experienced with the NPS certification process. These professionals help design rehabilitation work that meets preservation standards, prepare application documentation, and communicate with NPS reviewers to address questions or concerns.
The specialized knowledge required centers on historic preservation principles, architectural history, appropriate preservation treatments, and documentation techniques. While legal and tax advisors may be involved in structuring the tax credit investment and ensuring proper credit claiming, the core application expertise involves preservation rather than finance.
NMTC applications require teams of specialized professionals including tax attorneys experienced with NMTC regulations, accountants familiar with tax credit structures, financial advisors understanding community development finance, and compliance consultants who can guide businesses through qualification requirements and ongoing obligations. The professional team must navigate complex multi-party transaction structures, draft extensive legal documentation, and structure financing to optimize tax credit benefits while meeting all regulatory requirements.
The cost and complexity of assembling this professional team substantially exceed typical HTC advisory costs. While HTC projects might spend $25,000 to $75,000 on preservation consulting and architectural fees related to the credit application, NMTC transactions commonly incur $250,000 to $500,000 in professional fees covering legal, accounting, compliance, and advisory services. This cost differential reflects the greater structural complexity of NMTC financing 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 the 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. The complexity of combining programs requires experienced advisors who understand both incentives and can optimize the total capital stack.
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 the NMTC and HTC application processes differ—from applicant identity and timing to documentation requirements and compliance obligations—enables developers and community development professionals to navigate each program effectively and recognize opportunities to leverage both incentives for maximum project benefit and community impact.