Form 8874 (Rev. 9-2017)
Exceptions. An equity investment in an entity that otherwise
qualifies as a qualified equity investment or a non-real estate
Section references are to the Internal Revenue Code unless
qualified equity investment is eligible to be designated as a
qualified equity investment if made prior to an allocation
agreement only if the following applies.
• The equity investment was made on or after the date the CDFI
For the latest information about developments related to Form
Fund publishes a Notice of Allocation Availability (NOAA) in the
8874 and its instructions, such as legislation enacted after they
Federal Register, and the designation of the equity investment
were published, go to
as a qualified equity investment is made for a credit allocation
received under an allocation application submitted to the CDFI
Fund under that NOAA. If the entity in which the equity
investment is made does not receive an allocation under that
The new markets tax credit allocation has been extended for
NOAA, the equity investment will not be eligible to be
calendar years through 2019. To find out if the allocation is
designated as a qualified equity investment. For details, see
extended beyond 2019, go to
Regulations sections 1.45D-1(c)(3)(ii)(B) and 1.45D-1(c)(3)(iii).
Purpose of Form
The maximum amount of equity investments so designated by
Use Form 8874 to claim the new markets credit for qualified
the qualified CDE cannot exceed the amount of the allocation it
equity investments made in qualified community development
received from the CDFI Fund. The names and addresses of
entities (CDEs). This credit is part of the general business credit.
qualified CDEs that have received an allocation for each
allocation round and the amount of that allocation are listed on
Taxpayers that are not partnerships or S corporations, and
the CDFI Fund website at
whose only source of this credit is from those pass-through
entities, are not required to complete or file this form. Instead,
Non-Real Estate Qualified Equity Investment
they can report this credit directly on Form 3800, Part III, line 1i.
If a qualified equity investment is designated as a non-real
estate qualified equity investment, then the qualified equity
investment may only satisfy the substantially-all requirement if
the CDE makes qualified low-income community investments
that are directly traceable (including investments made through
A qualified CDE is a domestic corporation or partnership that
one or more CDEs) to non-real estate qualified active low-
meets the following requirements.
income community businesses. The proceeds of a non-real
• Its primary mission is serving, or providing investment capital
estate qualified equity investment cannot be used for
for, low-income communities or persons.
transactions involving a qualified active low-income community
• It maintains accountability to residents of low-income
business that is not a non-real estate qualified active low-
communities through their representation on any governing
income community business. See Regulations section
board or advisory board of the entity.
1.45D-1(d) for details about qualified low-income community
• It is certified as a qualified CDE by the Community
Development Financial Institutions (CDFI) Fund of the
How To Figure the Credit
Department of the Treasury.
A credit generally is allowed to the holder of the qualified equity
Qualified CDEs also include specialized small business
investment on each of 7 credit allowance dates. The credit
investment companies and community development financial
allowance dates are the date you make the initial investment
institutions. See section 45D(c)(2).
and each of the next 6 anniversary dates. The credit is equal to
Qualified Equity Investment
the qualified equity investment multiplied by 5% (6% for the 4th
through 7th years). However, the credit is not allowed for a
A qualified equity investment is an interest in a qualified CDE in
credit allowance date if the investment is not a qualified equity
the form of stock (other than nonqualified preferred stock) in a
investment on that date.
corporation or a capital interest in a partnership that meets all of
the following requirements.
Recapture of the Credit
• You acquired the investment solely for cash at its original
You may have to increase your tax by a credit recapture
issue (or from a taxpayer for whom the investment was a
amount if at any time within 7 years from the date of the original
qualified equity investment). The cash may be from borrowed
issuance of the qualified equity investment:
funds, including a nonrecourse loan. For details, see Rev. Rul.
2003-20 and Rev. Rul. 2010-17.
• The entity ceases to be a qualified CDE,
• Substantially all (at least 85%) of the cash is used to make
• Substantially all of the proceeds of the investment cease to
qualified low-income community investments. The 85%
be used to make qualified low-income community investments,
requirement is reduced to 75% for the seventh year of the
7-year credit period.
• The investment is redeemed or otherwise cashed out by the
• The investment was designated as a qualified equity
investment or a non-real estate qualified equity investment by
Exception. If a CDE fails to use substantially all of the proceeds
the CDE on its books and records for purposes of the new
of a qualified equity investment to make qualified low-income
community investments, the CDE may avoid recapture of the
Generally, a qualified CDE can designate an equity investment
credit if it corrects the failure within 6 months after the date it
as a qualified equity investment or a non-real estate qualified
becomes aware (or reasonably should have become aware) of
equity investment only if it applied for and received a new markets
the failure. Only one correction is permitted for each qualified
credit allocation and entered into an allocation agreement with the
equity investment during the 7-year credit period.
CDFI Fund before the equity investment was made.
See section 45D(g) and Regulations section 1.45D-1(e) for
Qualified CDEs must provide taxpayers holding a
details, including how to figure the credit recapture amount.
qualified equity investment with a completed Form
Generally, include the credit recapture amount on the line for
8874-A when a qualified equity investment is
recapture taxes on your income tax return for the year in which
the recapture event occurs. For example, the credit recapture