Navigating the New Markets Tax Credit (NMTC) program requires understanding a complex framework of eligibility criteria that determine which projects can access this valuable financing tool. While the program’s mission—stimulating economic growth in distressed communities—provides general guidance, specific regulatory requirements define precisely which businesses, projects, and activities qualify for support. For developers, business owners, and community organizations seeking NMTC financing, clarity about eligibility requirements saves time, focuses planning efforts, and increases the likelihood of securing funding.
The Foundational Framework of NMTC Eligibility
The NMTC program operates through Community Development Entities (CDEs) that receive allocation authority from the Community Development Financial Institutions (CDFI) Fund. These CDEs deploy capital into Qualified Active Low-Income Community Businesses (QALICBs) operating within designated low-income communities. Understanding eligibility therefore requires examining three interconnected components: geographic requirements, business qualification standards, and prohibited business activities.
The Internal Revenue Code Section 45D establishes the statutory framework, while the CDFI Fund provides additional guidance through allocation agreements and policy notices. Together, these create a qualification system designed to channel investment toward businesses and projects that generate meaningful community benefit while meeting investor return expectations.
What Types of Projects Qualify for New Market Tax Credits Eligibility?
The diversity of NMTC-eligible projects reflects the program’s comprehensive approach to community development, supporting various business types and facility developments that address different community needs.
Geographic Eligibility Requirements
Before examining specific project types, understanding geographic eligibility proves essential. Projects must be located in qualified census tracts meeting one of two criteria: either a poverty rate of at least 20 percent, or median family income not exceeding 80 percent of the area median. These geographic parameters ensure NMTC investments flow to genuinely distressed communities rather than affluent areas.
Additionally, businesses located outside these tracts may still qualify if they can demonstrate that at least 50 percent of their employees, sales, or services involve low-income communities or low-income persons. This flexibility recognizes that businesses sometimes need locations outside distressed areas for operational reasons while still serving those communities meaningfully.
Manufacturing and Production Facilities
Manufacturing operations consistently rank among the most common NMTC recipients, representing a substantial portion of annual allocations. These projects qualify because they typically create significant employment opportunities for low-income community residents while producing goods that serve broader markets. Eligible manufacturing projects span diverse industries including food production, textiles, furniture, metal fabrication, electronics assembly, and specialized industrial products.
A food processing facility producing packaged meals, a furniture manufacturer creating custom commercial installations, or a precision machining operation serving aerospace clients all exemplify qualifying manufacturing projects. These businesses often require substantial capital for facilities, equipment, and working capital that NMTC financing effectively provides. The jobs created typically offer wages above minimum levels while requiring skills that workforce development programs can provide, aligning well with program objectives.
Healthcare Facilities and Services
Healthcare projects constitute a major category of NMTC investments, addressing critical service gaps in underserved communities. Federally Qualified Health Centers (FQHCs), community health clinics, dental facilities, specialty care centers, urgent care clinics, and hospital expansions all qualify for NMTC support. These facilities provide essential services to populations often lacking adequate healthcare access while creating professional employment opportunities.
Mental health treatment centers, substance abuse rehabilitation facilities, and behavioral health clinics also qualify, recognizing that comprehensive healthcare extends beyond physical medicine. Pharmacy operations serving low-income communities, medical laboratory facilities, and diagnostic imaging centers round out the healthcare project types that successfully access NMTC financing.
Educational Facilities and Institutions
Educational infrastructure projects receive substantial NMTC support, recognizing education’s foundational role in economic mobility. Charter schools represent the most common educational project type, with hundreds having leveraged NMTC financing for facility construction or renovation. These schools provide alternatives to struggling public schools while creating employment for teachers, administrators, and support staff.
Early childhood education centers and daycare facilities qualify, addressing the critical need for affordable childcare that enables parents to maintain employment. Vocational training centers, workforce development facilities, and career and technical education programs also meet eligibility standards, directly connecting education to employment outcomes. Some private schools serving predominantly low-income student populations have successfully accessed NMTC financing, though public and charter schools represent more typical recipients.
Commercial Real Estate Development
Mixed-use developments combining retail, office, and sometimes residential components qualify when they demonstrate community benefit and economic impact. These projects often revitalize deteriorating commercial corridors, transforming vacant or underutilized properties into vibrant economic anchors. A development might include ground-floor retail serving community needs, upper-floor office space for small businesses, and community gathering areas.
Community facilities encompassing multiple uses—perhaps a health clinic, workforce training center, and community meeting space within a single development—exemplify the comprehensive approach NMTC investments can support. These multi-tenant projects maximize community benefit per dollar invested while creating diverse employment opportunities.
Grocery Stores and Food Access Projects
Food deserts—areas lacking access to fresh, affordable, nutritious food—plague many low-income communities. Full-service grocery stores opening in these areas qualify for NMTC support, addressing a critical community need while creating employment. These projects typically require substantial capital for building acquisition or construction, equipment, inventory, and working capital.
Beyond traditional supermarkets, food cooperatives, specialty food retailers focusing on healthy options, and grocery stores emphasizing local sourcing also qualify. Some NMTC transactions have supported food distribution facilities serving multiple retail outlets, multiplying community impact. The program recognizes that food access directly affects health outcomes, educational performance, and economic opportunity.
Community Facilities Serving Multiple Needs
Multi-purpose community centers offering diverse services and programming consistently qualify for NMTC financing. These facilities might house recreational programs, after-school activities, senior services, job training, health screenings, and community meetings. By consolidating services in accessible locations, these centers maximize benefit for residents while achieving operational efficiencies.
Arts and cultural facilities including theaters, museums, cultural centers, and performance spaces qualify when they demonstrate significant community access and impact. A community theater offering youth programming, a cultural center preserving heritage traditions, or a museum providing educational services all meet eligibility standards when properly structured.
Industrial and Flex Space Developments
Industrial parks, warehouse facilities, distribution centers, and flex space developments that house multiple small businesses qualify for NMTC support. These projects create infrastructure enabling business growth and job creation across multiple enterprises. A light industrial park might house a dozen small manufacturers, collectively employing hundreds of workers.
Incubator facilities and shared workspace developments designed to support entrepreneurs and small businesses also qualify. These projects lower barriers to business formation by providing affordable space and shared resources, catalyzing entrepreneurship in communities where commercial space options are limited or expensive.
Hotel and Hospitality Projects
Hotels developed in low-income communities to support tourism, business travel, or revitalization initiatives qualify under certain conditions. These projects must demonstrate clear community benefit through job creation, service provision, or catalytic impact on surrounding areas. A hotel near a convention center in a distressed downtown district, or a facility supporting cultural tourism in an underserved area, exemplifies qualifying hospitality projects.
Conference centers, event venues, and hospitality training facilities also potentially qualify when they demonstrate substantial community impact and employment generation. The program scrutinizes hospitality projects carefully to ensure genuine community benefit rather than merely profitable real estate ventures.
Technology and Innovation Centers
Data centers, telecommunications infrastructure, broadband deployment projects, and technology incubators qualify when they enhance economic opportunity in low-income communities. A data center providing high-speed internet access while employing local residents, or a technology training center connecting residents to digital economy opportunities, demonstrates qualifying project characteristics.
Research and development facilities, particularly those connected to universities or focusing on commercializing technologies that address community challenges, also meet eligibility standards. These projects position communities to compete for knowledge-economy jobs while fostering innovation ecosystems.
Professional Services and Office Operations
Professional service businesses including legal services, accounting firms, engineering consultancies, and business services qualify when they operate in and serve low-income communities. A law firm providing affordable legal services to low-income residents, or an accounting practice serving small businesses in distressed areas, exemplifies qualifying professional service projects.
Call centers and business process operations employing significant numbers of low-income community residents consistently qualify. These operations create accessible employment opportunities while potentially providing career advancement pathways through skills development.
Prohibited Business Types and Activities
Understanding what doesn’t qualify proves equally important. The NMTC program explicitly prohibits certain business types regardless of location or community impact. These prohibited categories include:
Private or commercial golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, and racetracks represent businesses Congress determined should not receive subsidized financing. Businesses deriving more than a de minimis amount of revenue from alcohol sales as a principal activity—essentially liquor stores and bars—also face disqualification, though restaurants where alcohol accompanies food service typically qualify.
Rental residential real estate projects generally don’t qualify, with limited exceptions for mixed-use developments where residential components are subordinate to commercial elements. Gambling facilities, though the presence of a few slot machines in an otherwise qualifying business won’t necessarily disqualify it. Private country clubs and businesses that restrict membership or access based on protected characteristics also face prohibition.
Special Considerations for Qualification
Beyond basic eligibility, businesses must demonstrate that they’re “active” operations rather than passive investment vehicles. This requires substantial involvement in operating the business rather than merely collecting rents or investment returns. The business must generate at least 50 percent of its gross income from active conduct of trade or business activities.
Businesses must also meet size standards, with tangible property not exceeding certain thresholds relative to the NMTC investment. These provisions prevent extremely large businesses that wouldn’t genuinely benefit from the program from accessing NMTC capital. Finally, businesses must not have too much income from portfolio investments or certain other passive sources.
Conclusion
The NMTC program’s eligibility framework casts a wide net, supporting diverse project types unified by their potential to generate community benefit through job creation, service provision, and economic revitalization. From manufacturing facilities to healthcare centers, educational institutions to grocery stores, the program recognizes that comprehensive community development requires investments across multiple sectors.
Understanding these eligibility parameters enables project sponsors to assess realistically whether NMTC financing suits their needs and to structure projects that maximize qualification likelihood. Working with experienced CDEs and NMTC consultants helps navigate the complexity while ensuring projects align with both program requirements and community development objectives. For communities seeking economic transformation, the breadth of eligible project types demonstrates that virtually every critical community need can potentially access NMTC support when projects are thoughtfully conceived and properly structured.