Lee Potter – Opportunity Zones – Insights From the Land of OZ

November 25, 2023 by Brad A. Molotsky

NJEDA Creates Emerging Developer Fund – makes grants of up to $200,000 for pre-development costs available for small scale developers

Last week, the New Jersey Economic Development Authority (NJEDA) Board approved a new $20 million pilot program to support “rising real estate developers”. The Emerging Developer Fund is designed to help developers gain access to capital and build additional capacity to expand their existing portfolio.

Access to capital for “small-scale developers” in the real estate development industry continues to be a challenge according to the NJEDA. These barriers include predatory lending, excessive carrying costs, and predevelopment expenses a developer may encounter. These pre-development costs are incurred by the developer before they can seek short-term construction financing. Often times, new developers lack the resources to cover these types of costs which they are pursuing projects – including design costs, environmental due diligence, site work diligence, permitting costs and the costs to prepare a financial model for a particular project.

The Emerging Developer Fund will provide grants of up to $200,000 to assist small-scale developers with up to 50% of their pre-development soft costs. The program will support “small-scale developers” that have completed at least two – but no more than five – commercial and/or mixed-use properties of similar scope. The creation of the program is intended by NJEDA to address various difficulties that continue to be a constant burden to emerging developers, which limit opportunities to expand their portfolios.

“As we work to revitalize communities across the state, we must ensure new, emerging developers have access to the same opportunities and advantages in order to create an inclusive economy,” said NJEDA Chief Executive Officer Tim Sullivan. “The Emerging Developer Fund will better position small-scale developers to grow and succeed, which will ultimately help build stronger communities. The program’s focus on developers in underserved communities underscore’s Governor Murphy and Lieutenant Governor Way’s commitment to creating a stronger, fairer economy and improving the lives of hardworking New Jerseyans.”

“Projects located in Opportunity Zones or in a Government Restricted Municipality (GRM) will receive an additional $50,000 bonus, increasing its award to $250,000. There are 169 designated Opportunity Zones and three GRM’s, including Atlantic City, Paterson, and Trenton.

According to the NJEDA press release, “soft costs eligible to be covered by the program include, insurance costs, legal fees, utilities, property taxes, construction drawings, and design fees. Costs associated with purchase of property or construction are not eligible.”

Follow the Yellow Brick Road – this program is a nice supplement to the NJ approved federal Opportunity Zone program and recognizes that smaller developers (as well as others) often times have trouble cobbling together the initial costs to pursue change in the various neighborhoods where Opportunity Zones exist in NJ (and beyond). NJEDA’s program will help address some of these issue by providing assistance to help with various soft costs and assist in getting a project moving from ideation to reality. While this may not be sufficient to get a large scale project off the ground, $250,000 can indeed go a long way to helping with environmental review, site review, planning and contracting to get control of a site and help move it to a more likely ability to execute.

Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Robert Montejo, Lee Potter, Parthiv Patel, Anastasios Kastrinakis, Cristina Sanchez or the attorney in the firm with whom you are regularly in contact.

October 2, 2023 by Brad A. Molotsky

Bi-Partisan Opportunity Zone Extension Legislation Introduced – Again!

During the high brow discussions the last few weeks in Washington regarding the potential shut down of the Federal Government, it would have been very easy to miss one little legislative tidbit that happened last week. Yes, you have read it correctly, the Bi-Partisan Opportunity Zones Transparency, Extension, and Improvement Act (H.R. 5761) was again introduced on Wednesday, September 30th by Representatives Mike Kelly (R-PA), Dan Kildee (D-MI), Carol Miller (R-WV), and Terri Sewell (D-AL).

For you non-Beltway folks, Rep. Kelly is a very senior member of the committee and chairs the Ways and Means Subcommittee on Tax Policy. Per the Real Estate Roundtable, the cosponsors also represent a very diverse group of lawmakers, geographically and politically. By introducing the Bill now, the topic of Opportunity Zones should be able to be included in any end-of-year tax discussions, if tax extender discussions materialize between the parties – a big if, but a possible/likely scenario.

The bill is similar to legislation that was previously introduced in the last Congress and includes the following key sections:

Extension of Capital Gain Deferral; 10% Reduction Benefit Applicable Once Again. The bill extends the deferral of gain invested in an Opportunity Zone for 2 years, from December 31, 2026 until December 31, 2028. The provision also would have the effect of allowing investments made through the end of 2023 to qualify for the 10% basis increase when the gain is recognized. The 10% basis increase applies to amounts invested by a taxpayer in a Qualified Opportunity Fund (“QOF”) and held for at least 5 years in the QOF prior to gain recognition.

OZ Expansion to Zero-Population Census Tracts. The bill authorizes States to designate zero population census tracts as OZs if the tract is adjacent to an existing OZ, was previously used for industrial purposes, and is a brownfield site. This could prove to be a very interesting addition to the OZ Act given the number of tracts that will likely fall into this definition. This will also answer the oft asked question of “can we add new zones to the OZ list” – if the definition is met, then YES!

Sunsetting of High-Income Census Tracts. The bill eliminates OZ benefits for future investments in certain high-income census tracts (median family income exceeds 130% of the national median). The bill also includes a mechanism for States to obtain a waiver, as well as a process for States to replace a census tract that has been sunsetted. Moreover, if an investor has purchased property in one of these areas and has met a minimum investment threshold, such investment cannot be removed from the ambit of the OZ program.

Information Reporting and Transparency Rules. The bill establishes annual information reporting requirements for QOFs, opportunity fund investors, and OZ businesses. The reporting requirements include: identifying, descriptive, and quantitative information regarding the fund’s investors, assets, investments, activities, employment levels, and residential rental units. The bill also includes financial penalties for noncompliance and annual public reporting of aggregated OZ data by the Treasury Department.

Fund to Fund Feeder Funds Permitted. The bill expands the definition of a QOF to include feeder funds. The feeder fund must be organized as a partnership, capitalized with cash only, and fully invested (95% of its assets) in opportunity funds. The consequence of this provision is to allow a QOF to function similar to a traditional, multi-asset real estate fund that can sell a property and reinvest the proceeds without triggering a taxable event for the fund’s underlying investors.

State and Community Dynamism Fund. The bill establishes a $1 billion State-allocated fund to support public and private investment in OZs through economic development programs that assist with capacity building, technical assistance, predevelopment costs, and other priorities.

Follow the Yellow Brick Road – this bi-partisan bill would breathe new life into the OZ program that has life left in it but is due to stop taking investments at the end of 2026. The extension would make investments in 2023 eligible for the 10% reductions benefit and provide 2 more years of on ramp for additional investments in the Opportunity Zone – a bit of defying gravity for sure and something many investors are likely to take advantage of. Moreover, my expectation is that if and when this legislation is passed, many industrial properties that were not included in the OZ program previously, will now be on the table for inclusion given the broader definition of zero population census tracts.

Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Robert Montejo, Lee Potter, Parthiv Patel, Anastasios Kastrinakis, Shiwei Wu or the attorney in the firm with whom you are regularly in contact.

February 19, 2022 by Brad A. Molotsky

From the Land of OZ: Equity Investments into QOFs Up Sharply in the last 6 months of 2021!

According to reporting this week from Novogradac, Qualified Opportunity Fund (“QOFs”) investments were sharply up in final 6 Months of 2021. While this is not overly shocking given the expiration of the 10% reduction benefit under the OZ Act on 12-31-21, the amount of deal flow and capital investment continues into 2022 at a fast and furious pace (and we are not talking cars here).

Per the report, Qualified Opportunity Funds raised a eye-popping $6.88 Billion in equity in the final six months of 2021, the largest quarterly amount raised in any period since the inception of the OZ program in 2018.

As of 12-31-21, total OZ equity from these QOF funds increased to approximately $24.4 Billion. Note, this equity is often leveraged with debt in order to build or buy projects which likely results in total project costs of these investments being at least $100 Billion.

Novogradac collects data from Qualified Opportunity Funds that voluntarily provide information to them on an ongoing basis. One of the features of the OZ Act that we often hear criticism of is the lack of required reporting on key performance indicators like funds flow, job creation, total project cost, etc. As such, while the volume of investment from Qualified Opportunity Funds that have been tracked is impressive, the totals do not represent the total market share of investments given the voluntary nature of the disclosure.

We are often asked, where is all the investment going on?

Per the report, the states with the most OZ investment to date have been California ($2.4 Billion); Arizona ($1.35 Billion); Texas ($1.12 Billion), New York ($1.05 Billion) and Florida ($784 Million). Moreover, there are 20 cities that have at least $200 million in planned or on-going Qualified Opportunity Fund investments, including Washington, DC ($740 Million); Los Angeles, CA ($679 Million); New York, NY ($642 Million); Nashville, TN ($521 Million), and Austin, TX ($455 Million) as the top five cities for OZ investments.

If you would like to review a copy of the report – a link is attached : https://www.novoco.com/notes-from-novogradac/novogradac-report-qof-investment-sharply-final-six-months-2021-20-cities-have-200-million-or-more

Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Anastasios Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

February 15, 2022 by Brad A. Molotsky

OZ Filing Deadlines Approaching – Make sure to connect with your tax filer on who is doing what!

Friends and colleagues, a quick reminder which you are likely aware of, but in the “let’s be sure” category:

2021 QOFs – If you created a QOF (a Qualified Opportunity Zone fund) in 2021, your first tax return will be due in 2022, likely next month on March 15^th . Reminder that it is critical to file the Form 8996 with your filing or the IRS will NOT treat you as a fund and the OZ will not work for your project or your business. IMPORTANT to review with your tax filer.

2018, 2019 and 2020 QOFs – for QOFs formed in 2018, 2019 and 2020, you will have your normal annual compliance filing with the IRS for the QOF; please again make sure you have clarity with your tax filer on who is filing this required piece of paper.

Personal Tax Filings for the Investor – if you have invested in a QOF in 2021, then you need to file with the IRS a Form 8997 that advises the IRS that you have invested in a QOF along with a deferral election form which will effectively defer your tax on your OZ eligible investment until 12-31-2026. These forms should be filed with your personal tax return on April 15, 2022.

Note, if you are involved in deals with lower tiered QOZBs (Qualified Opportunity Zone Businesses), the QOZB does not need to file anything with the IRS but (and a big BUT), they do need to do compliance testing on June 30th and December 31st of each year and report such testing to their QOF. Please make sure this is occurring for your investments.

Apologies for being slightly over protective of you here but a few QOFs and investors in the past have missed these deadlines or their accountant was not aware that they were supposed to be filing the relevant form. As such, we wanted to make sure you all get your signals straight and that we avoid any crossed OZ wires.

April 19, 2021 by Brad A. Molotsky

OZ: NY moves to reduce certain state Opportunity Zone benefits for NY deals – Smart, Necessary or Something Else?

New York legislators have moved forward in their 2021 budget process to limit some of the state Opportunity Zone benefits that had previously applied in New York. Some commentators have pointed to the budget process reduction of benefits as a “left wing” reaction to former President Trump’s support of the federal OZ program (which applies in all 50 states and the US Virgin Islands and Puerto Rico). Others have stated that it is a necessary move to reduce benefits for deals that should not be receiving federal and state benefits.

If the budget is approved, and the provisions become operative, New York will no longer offer some of the state tax benefits to real estate investors funding Opportunity Zone projects in New York, placing New York deals at a disadvantage to New Jersey, Connecticut, Ohio and other adjacent states that have approved and will retain their state benefits.

The OZ program is a Federal program that was enacted in 2017 and which became operative in 2018. Governors of all 50 states, including New York, were asked to review census data provided by the federal government which focused the Opportunity Zone program on low income areas throughout the US as identified in HUD census data from 2010. The Governors of all 50 states were then given 3 months to choose from within the potential applicable opportunity zones in their state which zones should become Opportunity Zones. Thereafter, once these zones were selected by the various governors, they were sent to Treasury for final approval, all of which selected zones were ultimately approved.

This process occurred during early 2018. Thereafter, the majority of states also “followed form” and permitted zones that the states had previously selected to be OZs to also be eligible for state benefits which would be the same as the federal benefits that existed under the program (i.e., (1) deferral of capital gains until 12-31-2026 (the “Deferral Benefit“); (2) potential reduction of the amount that is subject to tax by 15% if gain eligible dollars were invested into a qualified opportunity zone fund in 2018 or 2019, or 10% if gain eligible dollars were invested into a qualified opportunity zone fund in 2020 or 2021 (the “Reduction Benefit“); and, (3) if the investor followed the rules of the OZ Program and invested an amount of gain eligible dollars into a QOF (the “fund”) and left its investment in the QOF for 10 years or more, and, thereafter the QOF sold the property or the business it owned after the 10 year period but before 12-31-2047, then all gain on the sale of the business or real estate would NOT be subject to federal capital gains tax (the “Exclusion Benefit”). By electing to follow form, the states that did so, elected to have the Deferral Benefit, the Reduction Benefit and the Exclusion Benefit also apply at the state level on gains that would have otherwise been payable to the state; meaning the applicable states would also permit investments in their applicable OZ areas to obtain a state level Deferral Benefit, Reduction Benefit and the Exclusion Benefit.

New York, like all of its adjacent neighboring states, was one of the states that enacted legislation to incent Opportunity Zone investments by permitted such OZ benefits at the state level (i.e., the Deferral Benefit, the Reduction Benefit and the Exclusion Benefit at the New York level).

Under the 2021 New York budget proposal, the New York Deferral Benefit and the New York Reduction Benefits at the New York level would NO LONGER be applicable. The result of this change is that investors in New York businesses in the New York OZs and in real estate in the New York OZ, will no longer receive the same benefits as neighboring states, which could result in investors looking at these other adjacent states first or in a more meaningful way, given that the state level OZ incentives exist there rather than in New York.

While some commentators have stated this will “deal[] another blow to the program and developers taking advantage of it”, my personal view is that the benefits being eliminated in the budget process (i.e., deferral of capital gains payments until 12-31-2026 and reduction of the amount subject to tax by 10% if investment was made in 2020 or 2021), are not the real driver of the OZ program and the massive amount of investment that has occurred in the low and moderate income opportunity zones nationally since the enactment of the OZ program – rather, it is the Exclusion Benefit, which is NOT being eliminated in New York, that is the main driver of behavior in the OZs.

Even with the New York budget modifications, New York’s 514 census tracts included in the program will still qualify for federal tax incentives for investing in these distressed areas and the New York Exclusion Benefit will still apply.

Follow The Yellow Brick Road: So, has New York cut off its nose to spite its face? Slightly, as some investors who are seeking both federal and state benefits to justify a more difficult project will likely look elsewhere. That said, the real driver of transactions in the OZ space as noted above is the Exclusion Benefit which applies once one has been invested in the applicable opportunity zone for 10 years or more, and this benefit, notwithstanding the New York change, will still exist at BOTH the federal and New York state level. On balance, while the budget change sounds like a big move and strikes a blow for anti-Trump sentiment, in reality, the real opportunity of the OZ program in hopefully creating jobs for local residents will remain and the Exclusion Benefit driver will remain in tact and continue to provide a reinforcer for this type of behavior.

Duane Morris has an active Tax Credits and Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico using tax credit equity and standard equity. We have closed over 73 OZ deals since their inception and are actively working on over 33 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Keli Isaacson Whitlock, Anastasios Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

Take care and stay safe.

February 18, 2021 by Brad A. Molotsky

OZ: Bi-Partisan Legislation introduced to extend OZ investment period to 2028

Who says our Congress is not interested in bi-partisan legislation?

U.S. Representatives Tim Burchett (TN-02) and Henry Cuellar (TX-28) introduced a bi-partisan piece of legislation entitled the Opportunity Zone Extension Act of 2021. This bipartisan legislation would extend the Opportunity Zones program until the end of 2028.

“The Opportunity Zones program was making a difference in East Tennessee communities and underserved areas around the country before the COVID-19 pandemic rocked our economy,” Rep. Burchett said. “Extending this program would give investors additional time to provide meaningful financial support to businesses and create quality, good paying jobs in Opportunity Zones.”

According to Congressman Henry Cuellar. “This critical legislation will help stimulate economic growth, job creation, and provide support to underdeveloped communities. Through this legislation we will be able to help accelerate our economy’s recovery from the pandemic. I am committed to making sure everyone has access to opportunity and can achieve the American dream.”

Currently, the Opportunity Zones program allows participating investors to defer taxes on capital gains that are invested in designated Opportunity Zones until the end of 2026. Rep. Burchett’s and Rep. Cuellar’s bill would extend this date and allows capital gains to be deferred until the end of 2028.

Opportunity Zones are located in economically distressed areas across the United States.

According to the sponsors, extending the Opportunity Zones program by 2 years is intended to attract private sector investment in underserved communities, building on pre-pandemic success and helping them come back stronger than before.

While it is too early to tell if this piece of OZ extension legislation is likely to get any legs given the current pressures on Congress, its bi-partisan support puts it in good stead for future conversation and, potentially for action, once Congress deals with the current Covid bill and likely an infrastructure bill. We will keep our eyes and ears open and report back on developments on this front.

Duane Morris has an active Tax Credits and Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico using tax credit equity and standard equity. We have closed over 63 OZ deals since their inception and are actively working on over 33 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Keli Isaacson Whitlock, Anastasios Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

Take care and stay safe.

January 23, 2021January 26, 2021 by Brad A. Molotsky

IRS Extends Various Opportunity Zone Deadlines to March 31, 2021 given COVID-19

Taxpayers who recognized a capital gain in 2020 may have until March 31, 2021 to invest in a Qualified Opportunity Zone Fund (“QOF”), according to a new notice issued by the IRS last week.

On January 20, 2021, the IRS issued Notice 2021-10, which provided additional relief to taxpayers by postponing certain due dates to March 31, 2021.

Under Section 1400Z-2 of the Code, taxpayers normally have 180 days to invest capital gains in a QOF to be eligible for Opportunity Zone tax treatment.

One of the deadlines postponed by a previous relief notice was a taxpayer’s 180-day deadline for investing capital gain eligible dollars into a QOF. For any 180-day period that ended on or after April 1, 2020 and before July 15, 2020, the deadline was initially extended to July 15, 2020. Thereafter, under IRS Notice 2020-39 further relief for QOFs was granted to allow any 180-day period that ended on or after April 1, 2020 and before December 31, 2020, to be extended to December 31, 2020.

With their latest Notice, given the COVID-19 pandemic, the IRS again extended various deadlines again for QOFs and their investors to March 31, 2021.

In practical terms for an individual taxpayer, for any gain recognized on or after April 1, 2020 and before March 31, 2021, effectively, there is no 180-day period, rather, a March 31, 2021 deadline applies to invest their gain in a QOF. As such, the new IRS notice, gives some investors with 2020 capital gains (i.e., those with gains from April 1, 2020 to October 2, 2020) more time than originally anticipated for investment in OZs. For any gain recognized on or after October 2, 2020, the standard 180-day period will once again apply.

Other relief provided in the new notice applies to Qualified Opportunity Fund compliance deadlines, including extensions for complying with the 90% investment standard, the 30-month substantial improvement period, the 31 month working capital safe harbor, and the 12-month reinvestment period.

Duane Morris has an active Tax Credits and Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico using tax credit equity and standard equity. We have closed over 61 OZ deals since their inception and are actively working on over 38 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Keli Isaacson Whitlock, Anastasios Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

Take care and stay safe.

December 17, 2020 by Brad A. Molotsky

New Markets Tax Credits and Opportunity Zones – Bill Proposed in the US Senate to make NMTC Permanent and prioritize grant funding in OZs

Earlier this week, 4 Senators introduced legislation that would make the new markets tax credit (NMTC) permanent and would seek to encourage further investment in opportunity zones (OZs).

Senators Marco Rubio, R-Florida, Mike Crapo, R-Idaho, Kelly Loeffler, R-Georgia, and Thom Tillis, R-North Carolina, cosponsored the Economic Empowerment for Underserved Communities Act.

The bill, a summary of which is attached, makes the NMTC permanent with a $5 Billion annual allocation adjusted for inflation.

Per Novogradac and the Senator’s office announcement, the legislation also encourages investment in Opportunity Zones (“OZs) by establishing representatives to facilitate participation in the OZ program, prioritizes grant assistance in OZs through the Health Resource and Services Administration, allocates $7 Billion to Community Development Financial Institutions (CDFIs), establishes a Small Business Investment Company facility to enhance access to venture capital for underserved groups and businesses affected by COVID-19, and extends Small Business Administration debt relief provisions from the CARES Act.

The NMTC is authorized only through the calendar-year 2020 round.

Senator Loeffler’s office released a summary of the bill.

Duane Morris has an active Tax Credits and Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico using tax credit equity and standard equity. We have closed over 61 OZ deals since their inception and are actively working on over 38 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Keli Isaacson Whitlock, Anastasios Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

December 15, 2020 by Brad A. Molotsky

New Markets Tax Credits – Expansion and Extension of $3.5 Billion proposed over the next 4 years – WOW!

Earlier this week on December 14, 2020, Reps. Terri Sewell, D-Alabama, and Tom Reed, R-New York, introduced legislation to extend and increase the new markets tax credit (NMTC).

The New Markets Stabilization Act would increase the NMTC allocation by $3.5 billion over four years, allow investors to carry back those credits for five years, exempt the NMTC from the 75% general business credit limitation, permanently exempt the NMTC from the alternative minimum tax and provide relief from certain debt modification rules for NMTC issuers and borrowers.

Per Novogradac, Sewell and Reed previously introduced legislation to make the NMTC permanent.

The NMTC expires at the end of this year, although the calendar-year 2020 round will be allocated next summer.

Duane Morris has an active Tax Credits and Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico using tax credit equity and standard equity. We have closed over 61 OZ deals since their inception and are actively working on over 38 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Keli Isaacson Whitlock, AK Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

December 10, 2020December 10, 2020 by Brad A. Molotsky

New Markets Tax Credits – Record Number of 2020 Applications; $5B in credits to be awarded

The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced earlier this week that it received 208 applications under the calendar year (CY) 2020 round of the New Markets Tax Credit Program (NMTC Program).

Per Treasury, the NMTC Program advances economic development in economically distressed communities by making tax credit allocations available to Community Development Entities (CDEs) for targeted investments in eligible areas.

The CDEs that applied under the CY 2020 round are headquartered in 44 states, the District of Columbia, and Puerto Rico. These applicants requested an aggregate total of $15.1 billion in NMTC allocation authority, over 3x the $5.0 billion in authority available for the 2020 round.

Created by Congress in December of 2000, the NMTC Program permits individual and corporate taxpayers to receive a credit against federal income taxes for making qualified equity investments in CDEs. The investor is provided a tax credit that equals 39% of the cost of the investment and is claimed over a seven-year period. Substantially all of the taxpayer’s investment must be used by the CDE to make qualified investments in low-income communities.

According to Treasury statistics, through the first 16 rounds of the NMTC Program, the CDFI Fund has made 1,254 awards totaling $61 billion in tax credit allocation authority. This $61 billion includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.

Duane Morris has an active Tax Credits and Opportunity Zone Team to help CDCs and other organizations and individuals plan, respond to, and invest in typical deals as well as Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico. We have closed over 61 OZ deals since their inception and are actively working on over 38 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.