OverviewCreated 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 if the investments are held for 10 years.
+How Opportunity Zones Work
, 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
Investing capital gains in Opportunity Zones can result in either a temporary deferral of the capital gains tax, or a permanent exclusion depending on the amount of time those investments are held in a Zone. Investments are eligible for deferment after a 5 year period, and they are eligible for permanent exclusion if held for at least 10 years.
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
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.
Tim Fisher, Manager, Government Affairs, Council of Development Finance Agencies
To view presentation (without audio), click here
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).
IRS Revenue Procedure for Opportunity Zones
This revenue procedure provides guidance to the Chief Executive Officers of any State, any possession of the United States, and the District of Columbia regarding the procedure for designating population census tracts as Qualified Opportunity Zones.
Policy Focus: Opportunity Zones Program
This report, produced by Enterprise Community Partners, provides an early overview of the Investing in Opportunity Act as well as what lies ahead for the program.