Opportunity Zone Program

Federal Opportunity Zone Program

Please Note:  Information on this page is provided for informational purposes only.  This is a federal program and direct links to the appropriate federal websites are provided below.  The City will try to keep this information up to date as the regulations evolve, but the reader should consult the federal webpages and/or their tax and real estate consultants. 

Opportunity Zones – Overview

The most recent federal initiative using market-based, tax policy approaches to spur investment in low-income communities is the Opportunity Zones program. In 2017, the Tax Cuts and Jobs Act was signed into law providing the enabling legislation for this emerging federal economic and community development program.

Simply put, this new program provides a vehicle for investors to invest in “opportunity funds.” These funds will, in turn, invest their resources into opportunity zones that have been designated across the country.

How the Program Works

The Opportunity Zones (OZ) program was created through changes in the federal tax code seeking to leverage an estimated $2.3 trillion of unrealized capital gains on stock and mutual funds that investors may hesitate to utilize due to reluctance to pay capital gains taxes.

The program’s tax incentive enables individuals and corporate taxpayers to defer capital gains (long and short term) on the sale of stock, assets, and other property by investing the proceeds into a certified opportunity zone fund that provides equity to businesses or projects within designated, distressed communities.

To realize the deferment, the gains from the sale of an asset must be invested in one of the certified opportunity zone funds within 180 days of the transaction. The program spurs long-term investments of capital by providing the greatest benefits to investors who hold their investments in the OZ fund for 10 years.

Qualified Opportunity Funds are an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.  The Opportunity Zone Fund must hold at least 90 percent of its assets in such property. In general, an “opportunity zone property” is one that conducts the majority of its business within the designated opportunity zone and is a business with most of its tangible property owned or leased within the zone.  OZ investment examples within the OZ: housing, opening new business, expansion of existing business, and community improvement projects.

Investment benefits include deferral of tax on prior gains as late as 2026 if the amount of the gain is invested in an Opportunity Fund. The benefits also include tax forgiveness on gains on that investment if the investor holds the investment for at least 10 years.  Opportunity Zones retain their designation for 10 years, but under the proposed regulations, investors can hold onto their investments in Qualified Opportunity Funds through 2047 without losing tax benefits.

Opportunity Zone Incentives

  1. An investor can defer capital gains taxes until 2026 by rolling their gains directly over into an Opportunity Fund.
  2. The deferred capital gains liability is effectively reduced by 10% if the invested Opportunity Fund is held for 5 years, and another 5% if it is held for 7 years.
  3. Any capital gains that accrue after the initial investments made through the Opportunity Fund are tax-free as long as the investor stays invested in the fund for at least 10 years.

EIG Example of the Tax Benefits of Investing in Opportunity Zones

Opportunity Zone Census Tract Map

Opportunity Zone Timeline

June-July, 2018:  U.S. Treasury will release Opportunity Fund Certification Forms

Oct.-Nov., 2018:  U.S. Treasury will publish Opportunity Zone regulations for public comment

Jan.-March, 2019:  U.S. Treasury will publish final Opportunity Zone legislation

December 31, 2026:  Investors can defer tax on prior gains until this date, with investment deadlines by 2019 and 2021 to receive certain basis adjustments. 

 

Opportunity Zone Resource Links