NAP Credit Introduction

NAP Credits: What Are They and Could You Benefit From Them?

At least one Indiana public education foundation has applied for and received NAP credits that can be used as an incentive for contributions from individuals and businesses. Here’s some basic information on NAP credits.

Neighborhood Assistance Program (NAP) tax credits are offered by the Indiana Housing and Community Development Authority (IHCDA). Up to $2.5 million in these credits is annually awarded to 501(c)(3) nonprofits for distribution. A nonprofit has to apply to the state and, if approved, is given a certain amount of money to offer as these tax credits.

How NAP Credits Work

Let’s say you (or your business) donate $1,000 to a nonprofit that has NAP credits and you ask the organization for NAP credit for your gift (usually you do have to ask since there's a limit to how much money the nonprofit can give away that year in NAP credits). The organization gives you a special form to sign and file with your state income taxes. That donation and form entitles you to a 50% tax credit (different than deduction) which means $500 of your $1,000 donation is added directly to your state tax refund (or deducted from what you owe, depending on your situation). So:

  $1,000  is your donation to XYZ Education Foundation (approved to offer NAP credits)

-  $500   is what you save on your Indiana tax return as a NAP credit

   $500   is the net cost to you for your $1,000 donation (not to mention the federal tax deduction)

How Does an Education Foundation Get to Offer NAP Credits

Well, there had to be a catch, right? Well, any nonprofit wanting to offer NAP credits must apply annually to the state (applications have usually been due around the end of March of each year, but 2014's info has yet to be posted). I’ve heard the application process isn’t a piece of cake, but you might be able to work on it so you’re ready to apply for next year. Your organization successfully completes the application and is approved to offer these credits. You are told how much you have to give out in these credits to donors and you are required to give out the fully amount you were allotted. 

As a first-time applicant, you must also attend an in-person or webinar training session (the webinars are on-demand and available 24/7) before you can apply. Nonprofits must be serving in an economically disadvantaged area of the state as defined in the application packet.

You can check out the 2013 packet at http://www.in.gov/ihcda/files/NAP_POLICY_2013-2014_NEW.pdf to see if it is something for your foundation to consider either in 2014 or 2015. 

As I mentioned, the application is an involved process, but what an incentive to be able to get some bigger gifts from some donors!