Rules Aim to Ease Use of New Markets Tax Credit in Investing

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IRS finalizes rules that provide for the ability for investors claiming the New Markets Tax Credit to reinvest returns in certified community development financial institutions as a way to make it easier for them to promote investments in non-real estate businesses. The New Markets Tax Credit is distributed to investors over a seven-year period, and the credit can be recaptured from the investors if the money is not “continually invested” in the low-income community throughout the full seven years. The current rules make it tough to use for investments aimed at providing working capital and equipment loans to non-real estate businesses because such loans are ordinarily amortized over a term of five years or less. IRS says the new rules try to address that issue by allowing returns on those shorter term loans to be reinvested in unrelated community development financial institutions that are also qualified community development entities.