Federal funding reductions are straining many nonprofit budgets. If your organization is struggling to secure the capital needed for critical projects — from constructing a new facility to expanding community services — you might want to consider the New Markets Tax Credit (NMTC). This powerful but often underutilized tool can help close funding gaps that could prevent you from achieving your organization’s strategic objectives.
Brief history
The NMTC was created in 2000 to encourage private investment in economically distressed communities. Traditionally, investing in low-income areas carries significant financial risk, which can discourage conventional lenders from getting involved. To help counter this, the federal government introduced the NMTC, which investors can use over a period of time to offset up to 39% of their federal income for tax purposes. In exchange, these investors provide capital to qualified community projects.
For years, the NMTC faced uncertainty because it required periodic congressional reauthorization. That changed with the passage of the One Big Beautiful Bill Act (OBBBA), which made the credit permanent. This added stability has strengthened investor participation and increased the program’s reliability as a long-term financing tool.
How it works
Although nonprofits themselves can’t use the NMTC for any income tax liability, they can benefit from the program through a leveraged financing structure. A Community Development Entity (CDE) allocates NMTCs to a qualified project located in a low-income or otherwise distressed community. The investor contributes equity to the CDE in exchange for tax credits, which are made available over a period of seven years. Then, the nonprofit receives a low-interest, partially forgivable loan from the CDE for the capital project.
The result is a financing package that’s far more favorable than traditional bank debt. In many cases, the CDE subsidy can reduce a project’s costs by 20% to 25%.
Need is now
Not only have federal government grants to many nonprofits shrunk, but construction costs (which affect many charitable organizations’ projects) are soaring. NMTC financing may be the difference between delaying a project for years and breaking ground in 2026. The NMTC can support a wide range of construction initiatives, including community centers, food banks, educational and job-training facilities, and health care clinics.
By leveraging private capital to supplement public dollars, the NMTC offers a complex, but potentially meaningful solution for nonprofits determined to expand their impact despite current financial headwinds.
© 2026
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