Use Form 8874 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.
To access Form 8874 in the desktop program, from the main menu of the tax return (Form 1040), select:
- General Business Credit (3800)
- Current Year General Business Credits
- Form 8874 - Enter the required information for up to three CDEs.
If any portion of a prior year credit claimed on Form 8874 is required to be recaptured (see recapture of the credit below), from the main menu of the tax return (Form 1040), select:
- Other Taxes
- Other Additional Taxes
- Recapture of Other Credits
- Recapture of New Markets Credit (8874)
For the definitions of Qualified Community Development Entities (QDE) and Qualified Equity Investments, click here.
Recapture of the Credit - You may have to increase your tax by a credit recapture amount if at any time within 7 years from the date of the original issuance of the qualified equity investment:
- The entity ceases to be a qualified CDE,
- Substantially all of the proceeds of the investment cease to be used to make qualified low-income community investments,
- The investment is redeemed or otherwise cashed out by the entity.
Exception. If a CDE fails to use substantially all of the proceeds of a qualified equity investment to make qualified low-income community investments, the CDE may avoid recapture of the credit if it corrects the failure within 6 months after the date it becomes aware (or reasonably should have become aware) of the failure. Only one correction is permitted for each qualified equity investment during the 7-year credit period.