Commercial Insights

New Markets Tax Credits: What they are and how they work

Key insights

• New Markets Tax Credits (NMTCs) can help address funding gaps and move qualifying community-focused projects forward from concept toward implementation.
• NMTC-supported financing may be available for qualifying projects undertaken by for-profit and nonprofit organizations that satisfy applicable program requirements.
• NMTCs are now a permanent part of the Internal Revenue Code, providing greater certainty for organizations evaluating longer-term investments.
• Early planning with an experienced team may help organizations evaluate potential transaction structures and navigate the specialized NMTC process.

There are underserved communities across the country that welcome much-needed investment. At the same time, there are businesses, health care and education providers, nonprofits, and developers that have the desire to help these communities with jobs and essential services.

Yet many worthwhile projects stall for the same reason: a funding gap.

The federal New Markets Tax Credit (NMTC) Program was designed to encourage private investment in qualifying low-income communities. The program can help bridge funding gaps by encouraging private investment in low-income and underserved communities. Since its enactment in 2000, the program has supported billions of dollars in financing for projects that create quality jobs, improve access to essential services, and strengthen local economies.

The program has evolved over time, according to Steve Ross, the New Markets Tax Credit team leader for Regions Bank. “The NMTC program has become more flexible and efficient. A wider range of organizations now have access to the resource, including manufacturing businesses, community organizations, and nonprofits working to support economic development.”

In the latest step in its evolution, Congress made the NMTC Program a permanent part of the Internal Revenue Code in July 2025, providing greater certainty for businesses, developers, and nonprofits evaluating future projects.

NMTC: An important component in the capital stack

Many community-focused developments rely on a combination of financing sources, including traditional loans, grants, public funding, philanthropic support, and equity investments. Even when those sources are secured, a project's capital stack may still fall short.

That shortfall can delay construction, reduce project scope, or prevent a development from moving forward altogether.

NMTC financing is designed to address that challenge by providing flexible, more favorable gap financing, often representing as much as 15% of a project's capital stack.

For organizations seeking to expand operations, renovate facilities, purchase equipment, or undertake new construction, that final piece of financing may help a qualifying project advance toward implementation and deliver measurable community impact.

What kind of organizations may benefit from NMTCs?

Both nonprofit and for-profit organizations may be considered for NMTC-supported financing if their projects serve eligible low-income communities and generate meaningful community benefits.

Potential projects may include:

• Manufacturing facilities
• Health care facilities
• Community facilities
• Workforce development initiatives
• Food access projects
• Educational facilities
• Commercial real estate developments
• Certain affordable homeownership-related projects
• Equipment investments that support job creation

What makes a strong NMTC project?

Every effort is unique, but successful NMTC opportunities typically share several characteristics.

Generally, the project or qualifying business must satisfy applicable low-income-community or targeted-population requirements under the NMTC rules. Eligibility is determined using census-tract-based requirements established by the U.S. Department of the Treasury’s CDFI Community Development Financial Institution, or CDFI Fund.

Second, the project should deliver measurable community benefits. Those benefits may include:

• Job creation and retention
• Expanded access to health care
• Improved food access
• Educational opportunities
• Community services
• Economic revitalization

Finally, organizations should be prepared to clearly explain their business objectives, expected community benefits, and ability to satisfy applicable financing and compliance requirements.

As Ross explains, "It’s important for the organization to explain how it will specifically address the needs of the community it hopes to serve."

Bringing ideas to life with timely guidance

One mistake an organization may make is to wait until financing decisions are substantially complete before exploring NMTC opportunities.

Because NMTCs are often employed as gap financing, some only turn to that option after the rest of the capital stack has been assembled. Yet, in practice, earlier planning may provide additional time to evaluate eligibility, potential financing structures and transaction requirements.

Regions encourages organizations to begin exploring NMTC financing during the early planning stages, when project goals, community impact and financing strategies are still taking shape.

According to Ross, "Starting the conversation with your bank early can make a meaningful difference. We can help assess potential eligibility, connect you with industry professionals, and explore strategies that may help position your project for long-term success.”

Find out more: Understanding New Markets Tax Credits

Ready to help

To learn more about the NMTC program and discuss whether a proposed project may warrant further evaluation, contact the Regions NMTC team for an early-stage discussion about project possibilities.