Final rules 3
(a) Allowance of credit
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(1) In general For purposes of section 38, in the case of a taxpayer who holds a qualified equity investment on a credit allowance date of such investment which occurs during the taxable year, the new markets tax credit determined under this section for such taxable year is an amount equal to the applicable percentage of the amount paid to the qualified community development entity for such investment at its original issue.
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(2) Applicable percentage For purposes of paragraph (1), the applicable percentage is—
(A) 5 percent with respect to the first 3 credit allowance dates, and
(B) 6 percent with respect to the remainder of the credit allowance dates.
(3) Credit allowance date For purposes of paragraph (1), the term “credit allowance date” means, with respect to any qualified equity investment—
(A) the date on which such investment is initially made, and
(B) each of the 6 anniversary dates of such date thereafter.
(b) Qualified equity investment For purposes of this section—
(1) In general The term “qualified equity investment” means any equity investment in a qualified community development entity if—
(A) such investment is acquired by the taxpayer at its original issue (directly or through an underwriter) solely in exchange for cash,
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(B) substantially all of such cash is used by the qualified community development entity to make qualified low-income community investments, and
“Substantially all” is defined in Reg. § 1.45D-1(c)(5)(i).
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(C) such investment is designated for purposes of this section by the qualified community development entity.
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Such term shall not include any equity investment issued by a qualified community development entity more than 5 years after the date that such entity receives an allocation under subsection (f). Any allocation not used within such 5-year period may be reallocated by the Secretary under subsection (f).
(2) Limitation The maximum amount of equity investments issued by a qualified community development entity which may be designated under paragraph (1)(C) by such entity shall not exceed the portion of the limitation amount allocated under subsection (f) to such entity.
(3) Safe harbor for determining use of cash The requirement of paragraph (1)(B) shall be treated as met if at least 85 percent of the aggregate gross assets of the qualified community development entity are invested in qualified low-income community investments.
(4) Treatment of subsequent purchasers The term “qualified equity investment” includes any equity investment which would (but for paragraph (1)(A)) be a qualified equity investment in the hands of the taxpayer if such investment was a qualified equity investment in the hands of a prior holder.
(5) Redemptions A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this subsection.
(6) Equity investment The term “equity investment” means—
(A) any stock (other than nonqualified preferred stock as defined in section 351(g)(2)) in an entity which is a corporation, and
(B) any capital interest in an entity which is a partnership.
(c) Qualified community development entity For purposes of this section—
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(1) In general The term “qualified community development entity” means any domestic corporation or partnership if—
(A) the primary mission of the entity is serving, or providing investment capital for, low-income communities or low-income persons,
(B) the entity maintains accountability to residents of low-income communities through their representation on any governing board of the entity or on any advisory board to the entity, and
(C) the entity is certified by the Secretary for purposes of this section as being a qualified community development entity.
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(2) Special rules for certain organizations The requirements of paragraph (1) shall be treated as met by—
(A) any specialized small business investment company (as defined in section 1044(c)(3)), [OLRC note: See References in Text note below.] and
(B) any community development financial institution (as defined in section 103 of the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4702)).
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(d) Qualified low-income community investments For purposes of this section—
(1) In general The term “qualified low-income community investment” means—
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(A) any capital or equity investment in, or loan to, any qualified active low-income community business,
(B) the purchase from another qualified community development entity of any loan made by such entity which is a qualified low-income community investment,
(C) financial counseling and other services specified in regulations prescribed by the Secretary to businesses located in, and residents of, low-income communities, and
(D) any equity investment in, or loan to, any qualified community development entity.
(2) Qualified active low-income community business
(A) In general For purposes of paragraph (1), the term “qualified active low-income community business” means, with respect to any taxable year, any corporation (including a nonprofit corporation) or partnership if for such year—
(i) at least 50 percent of the total gross income of such entity is derived from the active conduct of a qualified business within any low-income community,
(ii) a substantial portion of the use of the tangible property of such entity (whether owned or leased) is within any low-income community,
“Substantial” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
(iii) a substantial portion of the services performed for such entity by its employees are performed in any low-income community,
“Substantial” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
(iv) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to collectibles (as defined in section 408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and
(v) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to nonqualified financial property (as defined in section 1397C(e)).
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(B) Proprietorship Such term shall include any business carried on by an individual as a proprietor if such business would meet the requirements of subparagraph (A) were it incorporated.
(C) Portions of business may be qualified active low-income community business The term “qualified active low-income community business” includes any trades or businesses which would qualify as a qualified active low-income community business if such trades or businesses were separately incorporated.
(3) Qualified business For purposes of this subsection, the term “qualified business” has the meaning given to such term by section 1397C(d); except that—
(A) in lieu of applying paragraph (2)(B) thereof, the rental to others of real property located in any low-income community shall be treated as a qualified business if there are substantial improvements located on such property, and
(B) paragraph (3) thereof shall not apply.
(e) Low-income community For purposes of this section—
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(1) In general The term “low-income community” means any population census tract if—
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(A) the poverty rate for such tract is at least 20 percent, or
(i) in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or
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(ii) in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.
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Subparagraph (B) shall be applied using possessionwide median family income in the case of census tracts located within a possession of the United States.
(2) Targeted populations The Secretary shall prescribe regulations under which 1 or more targeted populations (within the meaning of section 103(20) of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4702(20))) may be treated as low-income communities. Such regulations shall include procedures for determining which entities are qualified active low-income community businesses with respect to such populations.
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 221(a), amended heading and text of par. (2) generally, substituting provisions relating to regulations under which 1 or more targeted populations could be treated as low-income communities for provisions authorizing Secretary to designate any area within any census tract as a low-income community if certain conditions were met.
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(3) Areas not within census tracts In the case of an area which is not tracted for population census tracts, the equivalent county divisions (as defined by the Bureau of the Census for purposes of defining poverty areas) shall be used for purposes of determining poverty rates and median family income.
(4) Tracts with low population A population census tract with a population of less than 2,000 shall be treated as a low-income community for purposes of this section if such tract—
(A) is within an empowerment zone the designation of which is in effect under section 1391, and
(B) is contiguous to 1 or more low-income communities (determined without regard to this paragraph).
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 221(b), added par. (4).
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(5) Modification of income requirement for census tracts within high migration rural counties
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 223(a), added par. (5).
(A) In general In the case of a population census tract located within a high migration rural county, paragraph (1)(B)(i) shall be applied by substituting “85 percent” for “80 percent”.
(B) High migration rural county For purposes of this paragraph, the term “high migration rural county” means any county which, during the 20-year period ending with the year in which the most recent census was conducted, has a net out-migration of inhabitants from the county of at least 10 percent of the population of the county at the beginning of such period.
(f) National limitation on amount of investments designated
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(1) In general There is a new markets tax credit limitation for each calendar year. Such limitation is—
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(A) $1,000,000,000 for 2001,
(B) $1,500,000,000 for 2002 and 2003,
(C) $2,000,000,000 for 2004 and 2005,
(D) $3,500,000,000 for 2006 and 2007,
Amended 2006, 2008, 2009
- 2009 Pub. L. 111-5 Pub. L. 111–5, § 1403(a)(2), substituted “and 2007,” for “, 2007, 2008, and 2009.”
- 2008 Pub. L. 110-343 Pub. L. 110–343 substituted “2008, and 2009” for “and 2008”.
- 2006 Pub. L. 109-432 Pub. L. 109–432, § 102(a), substituted “, 2007, and 2008” for “and 2007”.
(E) $5,000,000,000 for 2008,
Amended 2009
- 2009 Pub. L. 111-5 Pub. L. 111–5, § 1403(a)(1), (3), added subpars. (E) and (F).
(F) $5,000,000,000 for 2009,
Amended 2009, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(18), inserted “, and” at end.
- 2009 Pub. L. 111-5 Pub. L. 111–5, § 1403(a)(1), (3), added subpars. (E) and (F).
(G) $3,500,000,000 for each of calendar years 2010 through 2019, and
Amended 2010, 2013, 2014, 2015
- 2015 Pub. L. 114-113 Pub. L. 114–113, § 141(a), substituted “for each of calendar years 2010 through 2019” for “for 2010, 2011, 2012, 2013, and 2014”.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 115(a), substituted “2013, and 2014” for “and 2013”.
- 2013 Pub. L. 112-240 Pub. L. 112–240, § 305(a), substituted “2010, 2011, 2012, and 2013” for “2010 and 2011”.
- 2010 Pub. L. 111-312 Pub. L. 111–312, § 733(a), added subpar. (G).
(H) $5,000,000,000 for each calendar year after 2019.
Amended 2019, 2020, 2025
- 2025 Pub. L. 119-21 Pub. L. 119–21, § 70423(a), substituted “for each calendar year after 2019” for “for for each of calendar years 2020 through 2025”.
- 2020 Pub. L. 116-260 Pub. L. 116–260, § 112(a), substituted “for each of calendar years 2020 through 2025” for “2020”.
- 2019 Pub. L. 116-94 Pub. L. 116–94, § 141(a), added subpar. (H).
(2) Allocation of limitation The limitation under paragraph (1) shall be allocated by the Secretary among qualified community development entities selected by the Secretary. In making allocations under the preceding sentence, the Secretary shall give priority to any entity—
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(A) with a record of having successfully provided capital or technical assistance to disadvantaged businesses or communities, or
(B) which intends to satisfy the requirement under subsection (b)(1)(B) by making qualified low-income community investments in 1 or more businesses in which persons unrelated to such entity (within the meaning of section 267(b) or 707(b)(1)) hold the majority equity interest.
(3) Carryover of unused limitation
Amended 2010, 2013, 2014, 2015, 2019, 2020, 2025
- 2025 Pub. L. 119-21 Pub. L. 119–21, § 70423(b), designated first sentence as subpar. (A) and inserted heading, added subpar. (B), and struck out former second sentence which read as follows: “No amount may be carried under the preceding sentence to any calendar year after 2030.”
- 2020 Pub. L. 116-260 Pub. L. 116–260, § 112(b), substituted “2030” for “2025”.
- 2019 Pub. L. 116-94 Pub. L. 116–94, § 141(b), substituted “2025” for “2024”.
- 2015 Pub. L. 114-113 Pub. L. 114–113, § 141(b), substituted “2024” for “2019”.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 115(b), substituted “2019” for “2018”.
- 2013 Pub. L. 112-240 Pub. L. 112–240, § 305(b), substituted “2018” for “2016”.
- 2010 Pub. L. 111-312 Pub. L. 111–312, § 733(b), substituted “2016” for “2014”.
(A) In general If the new markets tax credit limitation for any calendar year exceeds the aggregate amount allocated under paragraph (2) for such year, such limitation for the succeeding calendar year shall be increased by the amount of such excess.
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(B) Limitation No amount may be carried under subparagraph (A) to any calendar year afer [OLRC note: So in original. Probably should be “after”.] the fifth calendar year after the calendar year in which the excess described in such subparagraph occurred. For purposes of this subparagraph, any excess described in subparagraph (A) with respect to any calendar year before 2026 shall be treated as occurring in calendar year 2025.
(g) Recapture of credit in certain cases
(1) In general If, at any time during the 7-year period beginning on the date of the original issue of a qualified equity investment in a qualified community development entity, there is a recapture event with respect to such investment, then the tax imposed by this chapter for the taxable year in which such event occurs shall be increased by the credit recapture amount.
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(2) Credit recapture amount For purposes of paragraph (1), the credit recapture amount is an amount equal to the sum of—
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(A) the aggregate decrease in the credits allowed to the taxpayer under section 38 for all prior taxable years which would have resulted if no credit had been determined under this section with respect to such investment, plus
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(B) interest at the underpayment rate established under section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved.
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No deduction shall be allowed under this chapter for interest described in subparagraph (B).
(3) Recapture event For purposes of paragraph (1), there is a recapture event with respect to an equity investment in a qualified community development entity if—
(A) such entity ceases to be a qualified community development entity,
(B) the proceeds of the investment cease to be used as required of subsection (b)(1)(B), or
(C) such investment is redeemed by such entity.
(4) Special rules
(A) Tax benefit rule The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
(B) No credits against tax Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.
(h) Basis reduction The basis of any qualified equity investment shall be reduced by the amount of any credit determined under this section with respect to such investment. This subsection shall not apply for purposes of section 1202.
Amended 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(d)(4)(B)(iii), substituted “section 1202” for “sections 1202, 1400B, and 1400F”.
(i) Regulations The Secretary shall prescribe such regulations as may be appropriate to carry out this section, including regulations—
(1) which limit the credit for investments which are directly or indirectly subsidized by other Federal tax benefits (including the credit under section 42 and the exclusion from gross income under section 103),
(2) which prevent the abuse of the purposes of this section,
(3) which provide rules for determining whether the requirement of subsection (b)(1)(B) is treated as met,
(4) which impose appropriate reporting requirements,
(5) which apply the provisions of this section to newly formed entities, and
(6) which ensure that non-metropolitan counties receive a proportional allocation of qualified equity investments.
Amended 2006
- 2006 Pub. L. 109-432 Pub. L. 109–432, § 102(b), added par. (6).