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Opportunity Zones

Overview

Created as part of the Tax Cuts and Jobs Act, Opportunity Zones are a federal economic development tool aiming to improve the outcomes of distressed communities around the country. Opportunity Zones are low-income census tracts that offer tax incentives to groups who invest and hold their capital gains in Zone assets or property. By investing in Opportunity Zones, investors stand to gain a temporary deferral on their capital gains taxes if they hold their investments for at least 5 years, and a permanent exclusion from a tax on capital gains from the Opportunity Zones investments if the investments are held for 10 years.

+How Opportunity Zones Work

Opportunity Zones, created as a result of the passage of the Tax Cuts and Jobs Act, are low-income census tracts eligible to use tax incentives to encourage long-term investments in Zone assets and property. Opportunity Zones are designated as such by the governor or chief executive of a given state, district, or territory. All 50 states, the District of Columbia, and U.S. territories are eligible to designate Opportunity Zones.

Opportunity Zones must be created within "low-income communities," as defined by Section 45D(e) of the Internal Revenue Code (the New Markets Tax Credits Program uses the same definition). In Section 45D(e), "low income communities" are any census tract that have a poverty rate of at least 20 percent, or the median family income does not exceed 80 percent of statewide median family income. If in a metropolitan area, the median family area for such tract must not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.

As of December 22, 2017, state governors or territory chief executives had 90 days to designate their state or territories' Opportunity Zones. A maximum of 25 percent of a state or territories' low-income census tracts may be designated as Opportunity Zones. If a given state or territory has less than 100 low-income census tracts, it may still designate 25 state Opportunity Zones.

Tax Benefits to Investing in Opportunity Zones

For an investor to realize the tax benefits of investing in Opportunity Zones, an investor's capital gains must be invested in a Qualified Opportunity Fund with 180 days of the sale or exchange that generated the gains. Investors are then eligible to defer the tax on their capital gains until the earlier of: the date the Opportunity Fund investment is sold or December 31, 2026.

The capital gains invested in a Qualified Opportunity Fund are eligible for partial tax forgiveness if the investment is held in a Qualified Opportunity Fund for at least 5 years. After 5 years, only 90 percent of the original gain is taxed. If the investment is held for 7 years, only 85 percent of the original gain is taxed.

If an investment in a Qualified Opportunity Fund is held for 10 years, any tax on the appreciation of that investment is forgiven.

What are Opportunity Funds?

Opportunity Funds are Treasury-certified investment vehicles, that deploy capital into Opportunity Zones. Opportunity Funds are required to hold at least 90 percent of their assets in an Opportunity Zone, or face penalty for each month it fails to meet the investment requirement. The penalty equals the amount of the investment shortfall, multiplied by the underpayment rate as defined in Section 6621(a)(2) of the Internal Revenue Code.

Opportunity Zone Mapping Tool

Enterprise Community Partners has created an interactive map to find Opportunity Zone census tracts across the U.S.

Access the Map

+Official Treasury Designations

The U.S. Department of the Treasury is working to review and designate the Opportunity Zone nominations made by state and territory governors. The following states and territories have received official Treasury certification, and each confirmed Opportunity Zone designation can be viewed here with the CDFI Fund mapping tool.

+Informational Webinar

Understanding the Investing in Opportunity Act

Around the country American communities are experiencing highly uneven economic development, resulting in large, regional pockets of disinvestment and unemployment. The recently enacted Opportunity Zone program aims to correct the aforementioned economic imbalances by incentivizing groups - through the temporary deferral of a tax on capital gains - to invest in distressed areas. In this CDFA webinar, learn from our expert panelists how the Investing in Opportunity Act works, when the program will begin, and a host of other important details essential to understanding this new federal program.

Moderator(s)
  • Tim Fisher, Manager, Government Affairs, Council of Development Finance Agencies
  • Speaker(s)
  • Steve Glickman, Co-Founder and Executive Director, Economic Innovation Group
  • John Sciarretti, Partner, Novogradac & Company, LLP

  • To view presentation (without audio), click here.

    +Resources

    Opportunity Zones: A New Incentive for Investing in Low-Income Communities
    The Economic Innovation Group (EIG) has released a fact sheet on Opportunity Zones, which offers a comprehensive overview of the program's tax benefits and the ways to operate an Opportunity Fund.
    Opportunity Zones: An Analysis of Zone DesignationsMembers only Login
    Enterprise Community Parters has analyzed the results of Opportunity Zone nominations in select states and identified ideas for local policies and programs that could maximize the benefit of investments incented through Opportunity Zones.
    Bloomberg Tax Opportunity Zone Fact SheetMembers only Login
    Bloomberg Tax Management Real Estate Journal offers an in-depth look at the tax implications of Opportunity Zones.
    Guiding Principles for Opportunity ZonesMembers only Login
    This policy brief puts forward four principles to guide the selection and development of Opportunity Zones. The principles are designed to enable the greatest job creation potential and the most significant advantages for lower income resident employment, both, inside and outside the eligible zones.
    CDFI Fund QOZ Information Resource
    The CDFI Fund has produced this Opportunity Zones Information Resource, with sortable lists by State of all census tracts eligible for designation as a Qualified Opportunity Zone (QOZ).
    View Resources

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