Investors looking for information about claiming the New Markets Credit for qualified investments in qualified Community Development Entities (CDEs) can find important details with Form 8874. This form outlines the requirements for investments, credit allowance dates, and recapture of the credit.
What is Form 8874?
Form 8874 is used to claim the new markets credit for qualified equity investments made in qualified community development entities (CDEs). This credit is part of the general business credit, and is eligible to be designated if cash acquired was used to make qualified low-income community investments and the investment was designated as such by the CDE. Additionally, there is a maximum amount of equity investments that can be designated in relation to an allocation that was received from the CDFI Fund. Finally, there is a recapture of the credit in certain situations, such as when the entity ceases to be a qualified CDE or when the investment is cashed out.
IRS Form 8874 – Who Needs to Fill It Out?
IRS Form 8874 needs to be filled out by holders of qualified equity investments in qualified Community Development Entities (CDEs). To be eligible, these investments must have been acquired with cash, with at least 85% of the cash used to make qualified low-income community investments; they must have been designated as a qualified equity investment or a non-real estate qualified equity investment by the CDE, and have received a new markets credit allocation from the Community Development Financial Institutions (CDFI) Fund of the Department of the Treasury. Holders of the investment may be subject to a credit recapture amount, if certain conditions occur within seven years of the original issuance of the qualified equity investment.
Step-by-Step: Form 8874 Instructions For Filling Out the Document
For those filing Form 8874, this form must be used to claim the New Markets Credit for qualified equity investments made in qualified Community Development Entities (CDEs). It is important to note that certain definitions and exceptions may apply, such as qualified Equity Investments which includes stock issued in the form of a corporation or partnership, and non-real estate qualified equity investments, which must be directly traceable to qualified active low-income community businesses. Additionally, a maximum amount of equity investments is allowed based on the amount of the CDE’s allocation received from the CDFI Fund. Lastly, the credit allowance is equal to the qualified equity investment multiplied by 5% (with 6% for the fourth through seventh years) – however the credit will not be allowed if the investment is not a qualified equity investment. Ensure to capture the credit recapture amount on the line for recapture taxes when a recapture event asset occurs.
Below, we present a table that will help you understand how to fill out Form 8874.
| Information Required for Form 8874 | Details |
|---|---|
| Form Purpose | Claim the New Markets Credit for qualified equity investments. |
| Required Information | Details about qualified equity investments, credit allowance, and recapture taxes. |
Do You Need to File Form 8874 Each Year?
Yes, taxpayers claiming the New Markets Credit and their pass-through entities must file Form 8874 each year to claim the annual credit allowance. The credit is allowed for the date of the initial investment and each of the next 6 anniversary dates. Those holding the qualified equity investment may also be subject to a credit recapture amount if certain criteria are not met within seven years from the date of the investment.
Download The official IRS Form 8874 PDF
On the official IRS website, you will find a link to download Form 8874. However, to make it easier for you, we are providing the link in our article, which comes directly from the official irs.gov website! Click to download: Form 8874
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