Use Form 8874 to claim the new markets credit for qualified equity investments made in qualified community development entities (CDEs).
The taxpayer may have to increase the 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, or
- 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.
The taxpayer is not subject to recapture of the credit solely because they sell or otherwise dispose of the investment. However, they cannot claim the credit for any credit allowance date after the disposition.
Additional Information:
Desktop: Other Taxes and Recaptures - Tax Years 2020 and prior