Nonprofit organizations face new capital planning challenges amid recent policy changes to federal spending. These policy changes have resulted in federal funding freezes and cuts to grant programs impacting the nonprofit sector. As a result, nonprofits have to creatively identify alternative funding sources to meet fundraising goals, sustain staffing, and most critically — advance capital projects such as facility upgrades, new construction, or major equipment investments.
To help fill the gap in a sector already challenged by tight budgets and limited resources, nonprofit organizations can explore the New Markets Tax Credit (NMTC) program. The NMTC program gained stability under the One, Big, Beautiful Bill, which made the NMTC program a permanent fixture in the tax code. The $10 billion NMTC allocation from the 2024–2025 double award round offers nonprofits a significant opportunity to secure funding for capital projects.
Overview of the NMTC program
In a nutshell, the NMTC program encourages taxpayers to make investments into low-income communities by providing them with a tax credit for making those investments. The majority of urban areas and many rural areas qualify as distressed under the NMTC program. The credit equals 39% of the investment and is earned over seven years. NMTCs can provide a permanent net subsidy to a qualifying nonprofit organization that receives such an investment of up to 15–20% of the budgeted amount of their capital project. The best candidates are nonprofit organizations that are:
- Located in or serve the residents of a distressed or low-income community.
- Seeking financing assistance of $7 million or more.
- Either or both of the following:
- Making services or goods available to residents of a distressed community that aren’t readily available in the community.
- Creating a significant number of permanent jobs, particularly if such jobs will be available to low-income individuals.
Can your nonprofit organization benefit from NMTCs?
There’s no restriction on what type of nonprofit organization can utilize NMTCs — as long as they meet the NMTC eligibility requirements, which are based on census tract data, such as the poverty rate and median income. We’ve helped a variety of nonprofit organizations take advantage of the NMTC program, including:
- Business incubators
- Healthcare facilities
- Human service agencies
- Food banks and pantries
- Community facilities
- Charter schools
- College and university facilities
How to access NMTC capital
Nonprofit organizations seeking NMTC subsidies should first make sure their project qualifies and then identify community development entities (CDEs) with an allocation of NMTCs that are interested in utilizing part of such allocation to benefit the project.
We can quickly determine if your project is eligible for NMTCs as soon as you provide us with its location. We can also help introduce you to CDEs that may be able to provide NMTC allocation to your project. Information regarding CDEs that have received NMTCs is available here, and examples of projects that have received NMTC subsidy are available here.
The structure of the transaction and the nonprofit organization’s potential role in the project should be reviewed to determine consistency with the organization’s mission and to minimize potential tax consequences, including unrelated business income taxes, property taxes, and sales/use taxes. The organization may need to form a new entity to accommodate the NMTC structure.
A proactive capital planning approach is critical to build long-term resilience in a sector facing uncertainty. The NMTC program offers nonprofit organizations a useful tool to navigate an ever-changing federal funding landscape.
To fully realize the potential benefits of the NMTC program and avoid common foot faults, it’s essential to engage experienced professionals who understand the complexities of the program. Our expertise can help navigate regulatory requirements, structure transactions effectively, and ensure compliance, ultimately enhancing the impact and success of NMTC-financed projects.
