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Form 8874: New Markets Credit
IRS Form 8874 is used to claim the new markets credit for qualified equity investments made in qualified community development entities (CDEs). The allocation has been extended through calendar years 2025.
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IRS Form 8874 - New Markets Credit
IRS Form 8874 is used to claim the new markets credit for qualified equity investments made in qualified community development entities (CDEs). The allocation has been extended through calendar years 2025.
Risk Radar
Scan points- 1Failure to reduce your basis in the qualified equity investment by the allowed credit amount is a critical error.
- 2Failing to enter "5" or "6" correctly in column (e) for the year of investment.
- 3Not reporting the amount on Schedule 2, line 17a (for Form 1040).
- 4Forgetting to reduce basis by the credit amount even if it is carried forward.
- 5Claiming a credit allowance date after the disposition of the investment.
Plain English
This form allows taxpayers to claim a tax benefit called the New Markets Credit when they invest money into specific local businesses known as Qualified Community Development Entities (CDEs). It details these investments and calculates the credit rate earned. The credit is part of the general business credit available to the taxpayer.
Submission Date
- Filing date: 2021-11-01 22:10:23
- Preparation window: collect IDs, supporting records, and signatures in advance.
- Final review: verify names, dates, and required fields before submission.
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What this form is for
- Use this form when claiming the new markets credit for qualified equity investments made in qualified community development entities (CDEs).
- Do not use Form 8874 if you are a partnership or S corporation and your only source of the credit is from pass-through entities; instead, report it on Schedule K.
- Check Form 3800 instead when you are a taxpayer that is not a partnership or S corporation, and whose only source of this credit is from those pass-through entities.
Form selector
Use this form or another form?
Investment originated by Partnership/S Corp
Report the New Markets Credit amount on line 2 of Form 8874, which corresponds to reporting this amount on Schedule K.
✓ Verify if your entity is a partnership or S corporation.
Investment originated by Non-Pass-Through Entity
If you are not an S corp/partnership, report the credit directly on line 1i of Form 3800.
✓ Confirm whether you fall under the 'All others' category mentioned in the instructions.
Credit is from a Partnership or S Corp
Report the amount on both Schedule K (line 2) and Form 8874, as directed by the form.
✓ Ensure you have attached supporting documentation if needed.
Deadline or filing window
The new markets credit allocation has been extended for calendar years through 2025. Taxpayers must attach Form 8874 to their tax return when claiming the credit allowance date. The form itself does not specify a filing deadline, but it must accompany the relevant tax return.
Checklist
What you need before filling it out
Line 1: Identifying information
Name/address of CDE (a), EIN (b), Date of investment (c), Amount invested (d), Credit rate (e), Credit amount (f) · Form 8874, Page 1
Line 2: Partnership/S Corp credit
Report on Schedule K · Form 8874, Page 1
Non-Pass-Through Entity Credit
Report on Form 3800, Part III, line 1i · Form 8874, Page 1 & 2
Credit Recapture Trigger
Ceasing to be a qualified CDE or investment is redeemed/cashed out · Form 8874, Page 2
Qualified CDE Requirement
Must meet specific mission and accountability criteria · Form 8874, Page 2
Before you submit
- 1Ensure all necessary Name(s) and identifying information are present on Form 8874.
- 2Verify that column (e) reflects '5' if this is within the first three years of the credit period for each investment listed.
- 3Confirm that the correct reporting instructions are followed based on entity type (Line 2 or Line 1i of Form 3800).
- 4If attaching a statement, ensure the last row correctly states 'See attached' in column (a) and totals the credit amount in column (f).
- 5Check that the investment qualifies as either a qualified equity investment or non-real estate qualified equity investment.
- 6Verify that you are aware of potential recapture triggers within 7 years from the original issuance date.
- 7If applicable, ensure Form 8874-A was provided by the CDE when the investment was acquired.
How to file this form
- 1Enter details for each qualified equity investment directly on Line 1 of Form 8874, including Name/address (a) and EIN (b).
- 2Determine the appropriate credit rate (e) by entering '5' (for years 1-3) or '6' (for later years), then calculate the Credit amount (f).
- 3If reporting via Line 2, ensure you add this line to Form 8874; if reporting via Form 3800, confirm that Form 8874 is attached.
- 4Sign and date Form 8874 before sending it to the IRS.
- 5Keep a copy of the completed Form 8874 for your records.
Known limitations
- 1Taxpayers that are not partnerships or S corporations and whose only source of the new markets credit is from those pass-through entities can report the credit directly on Form 3800, Part III, line 1i instead of completing or filing Form 8874.
- 2If a qualified equity investment is designated as a non-real estate qualified equity investment by the CDE, it must be done on the CDE's books and records for purposes of the new markets credit.
- 3Qualified CDEs must provide taxpayers holding a qualified equity investment with a completed Form 8874-A when a qualified equity investment is acquired.
- 4Taxpayers cannot claim the new markets credit for any credit allowance date after the disposition of their investment, even if they are not subject to recapture solely due to selling or otherwise disposing of the investment.
Field map
Compact field-by-field guide
Entity Info
1 items
Name and taxpayer ID of the entity claiming the credit.
Credit Info
1 items
Type of credit or incentive being claimed.
Calculation
2 items
The base amount used to calculate the credit.
Calculated credit amount after applying formulas and limitations.
Certification
1 items
Detailed breakdown supporting the credit calculation.
Signatures
1 items
Sign and date the form.
Almost done reviewing the fields?
Fillable formOpen in Editor->The current edition is Revision November 2021 (Rev. 11-2021). The form directs users to www.irs.gov/Form8874 for the latest information, including details on legislative developments.
What changed or needs a fresh check
- Edition date — confirm the revision reads November 2021 (Rev. 11-2021).
- Latest information source — confirm reference to www.irs.gov/Form8874.
- Credit extension period — confirm allocation is extended through calendar year 2025.
- Specific instructions — confirm that for the first, second, or third year of the credit period, column (e) reads '5'.
- Taxpayer reporting requirement — confirm Form 3800, Part III, line 1i is referenced for non-pass-through entities.
Quick Facts
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After you file
- 1Retain books or records related to Form 8874 and its instructions as long as those contents may become material in the administration of any Internal Revenue law.
- 2Reduce your basis in your qualified equity investment by the amount of the new markets credits allowed, even if part or all of the credit is carried forward for future years.
- 3If a recapture event occurs, expect and retain Form 8874-B provided by the Qualified CDE.
- 4For a 2021 Form 1040 filer, the amount claimed on Form 8874 is reported on Schedule 2 (Form 1040), line 17a.
- 5For a 2021 Form 1120 filer, the amount claimed on Form 8874 is reported on Schedule J, line 9g (Other taxes).
Sources
- SRCInstructions p.1 — Form 8874 is used to claim the new markets credit for qualified equity investments.
- SRCInstructions p.1 — The form can be attached to a tax return and found at www.irs.gov/Form8874.
- SRCInstructions p.2 — The new markets credit allocation has been extended through calendar years 2025.
- SRCInstructions p.2 — Taxpayers that are not partnerships or S corporations, and whose only source of this credit is from those pass-through entities, report the credit directly on Form 3800, Part III, line 1i.
- SRCInstructions p.3 — For a 2021 Form 1040 filer, the amount claimed is reported on Schedule 2 (Form 1040), line 17a.
- SRCInstructions p.3 — Basis reduction must occur even if part or all of the credit is carried forward.
Common confusion points
Should I use Form 8874 or just report it elsewhere?
This depends on your entity type; if you are not a partnership or S corporation and the credit only comes from those entities, you can report it directly on Form 3800, Part III, line 1i.
→ Confirm whether your primary source of new markets credit is from a pass-through entity.
How do I know which year's rate to use?
For the first, second, or third year of the 7-year credit period, enter '5' in column (e); for any later year, enter '6'.
→ Check the specific tax year you are claiming the investment against.
What happens when I sell my investment?
You are not subject to recapture solely because you sell or dispose of it, but you cannot claim the credit for any allowance date after the disposition.
→ Verify that your sale/disposition date falls within the applicable 7-year credit period.
When do I reduce my basis?
You must reduce your basis in your qualified equity investment by the amount of the new markets credits allowed, even if some is carried forward.
→ Ensure you apply the reduction to the correct investment's basis.
What happens if there are multiple investments?
Enter each one on a separate line 1; if space runs out, attach a statement showing all the information and write 'See attached' in column (a) for the last row.
→ Count your qualified equity investments before filling out Line 1.
Does my CDE need to designate it as 'qualified'?
Generally, yes, but they must have applied for and received an allocation and entered into an agreement with the CDFI Fund *before* the investment was made.
→ Ask your CDE if they are a TIP Qualified CDE; this may require Form 8874-A.
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Questions about IRS Form 8874
What is IRS Form 8874 used for?
This form allows taxpayers to claim a tax benefit called the New Markets Credit when they invest money into specific local businesses known as Qualified Community Development Entities (CDEs). It details these investments and calculates the credit rate earned. The credit is part of the general business credit available to the taxpayer.
Who must file IRS Form 8874?
Taxpayers who hold a qualified equity investment must file Form 8874. If the taxpayer is not a partnership or S corporation, they are required to complete this form unless their only source of the credit comes from those pass-through entities.
What information does IRS Form 8874 require?
The form collects details for each qualifying investment directly held by the taxpayer on a credit allowance date in the current tax year. Specific information includes the CDE's name and address (Line 1), the amount of qualified equity investment (Line 1d), and the calculated credit rate (Line 1e).
When is IRS Form 8874 due?
The form must be attached to your tax return for the relevant tax year. For a 2021 Form 1040, the amount is reported on Schedule 2, line 17a.
Where do I file IRS Form 8874?
Form 8874 must be attached to the corresponding tax return. The instructions direct users to www.irs.gov/Form8874 for general information and latest updates.
How do I complete IRS Form 8874?
For each qualifying investment, enter details on Line 1 and subsequent lines. In column (e), enter the credit rate; for the first, second, or third year of the 7-year credit period, enter "5," and for later years, enter "6." A statement must be attached if more space is needed.
What happens if IRS Form 8874 is filed incorrectly?
If the credit is not claimed correctly, taxpayers may fail to reduce their basis in the qualified equity investment by the amount of the new markets credits allowed. Additionally, if a recapture event occurs, TIP Qualified CDEs must provide Form 8874-B.
Should I use Form 8874 or just report it elsewhere?
This depends on your entity type; if you are not a partnership or S corporation and the credit only comes from those entities, you can report it directly on Form 3800, Part III, line 1i. Confirm whether your primary source of new markets credit is from a pass-through entity.
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