Through well-organized transit-oriented development (TOD) policy, the government can guide orderly development along MRT routes and effectively diminish urban sprawl. However, in addition to the huge amount of funding required for MRT construction, local governments confront fiscal difficulties when implementing TOD policy. Therefore, the central government recently developed the Tax Increment Financing system to capture the appreciation of land value and to increase taxation sources so as to cover a portion of the construction expenses. TIF is a financial tool that allocates future tax increments from a designated area to pay off capital bonds for public improvements within a TOD district. Although TIF has been a popular financial tool in the United States for some years it is a new system in Taiwan. This paper discusses the mechanism of applying TIF to MRT funding in Taiwan and then gives some of the policy implications of its findings as a reference for establishing a future system for the MRT project.