The final tax reconciliation bill (H.R. 1, the Act), enacted on July 4, 2025, permanently extends the New Markets Tax Credit (NMTC), which was due to expire at the end of 2025.

The NMTC program, administered by Treasury's Community Development Financial Institutions (CDFI) Fund, was established in December 2000 by Congress. The program was designed to encourage investment in operating businesses and real estate projects in low-income communities. It allows individual and corporate investors to receive a tax credit against their federal income tax for making qualified equity investments in investment vehicles called CDEs. An investor's credit totals 39% of the investment in a CDE and is claimed over seven years. Most transactions are structured so that one party gets the credit and the project benefiting the low-income community receives a forgivable loan. A CDE must use substantially all of the investment to make qualified investments in low-income communities (see Tax Alert 2023-1586).

The Act amends IRC Section 45D(f)(1)(H) to change the provision ending the NMTC in 2025. Instead, the language reads that the NMTC limitation is $5b for each calendar year after 2019.

Implications

Historically, the program has gone through cycles of expiration and extension. The enactment of the permanent NMTC will make it easier for industry participants and those hoping to benefit from NMTC financing for their projects to conduct the type of long-term planning that is often required for these types of transformative investments.