IRS 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.
The credit is equal to the qualified equity investment multiplied by 5% in the first through third years and 6% for the fourth through seventh years.
To complete Form 8874 in TaxSlayer ProWeb, from the Federal Section of the tax return (Form 1040) select:
- Deductions
- Credits
- Less Common Credits
- New Markets Credit - Complete the appropriate section:
- New Markets Credit for CDE - Enter all the information required, including the name and address of the CDE, its EIN, the date of initial investment, and the amount of the investment. Also select the appropriate credit rate from the drop down menu, whether 5% in year one through three or 6% in year four through seven. Finally, indicate the type of credit activity, whether passive or nonpassive.
- Credit from Pass-Through Entities - If the taxpayer has received the credit from a pass-through entity on Schedule K-1, enter the entity's EIN and name along with the amount of the credit. Indicate the type of credit activity, whether passive or nonpassive.
- Credit Carryforwards/Carrybacks - Enter here any carryback or carryforward to the current tax year.
Recapture of the Credit
The taxpayer may have to recapture the credit 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, or
- Substantially all of the proceeds of the investment cease to be used to make qualified low-income community investments (subject to the exception below), or
- The investment is redeemed or otherwise cashed out by the entity.
There is one exception to the requirement to recapture the credit. If the 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.
To enter the recapture of the New Markets Credit, from the Federal Section of the tax return (Form 1040) select:
- Other Taxes
- Other Additional Taxes
- Recapture of Other Credits
- Recapture of New Markets Credit (8874) - Enter the recapture amount.
Additional Information: