By Alex Ostrowski, Research Assistant, and Dima Galkin, Associate
The passage of the Tax Cut and Jobs Act of 2017 brought a new tax incentive program that may motivate taxpayers to increase their investments in distressed communities. This economic development tool allows each state to designate certain high poverty census tracts as Opportunity Zones and encourages taxpayers to invest in these zones through “Opportunity Funds,” offering three primary benefits.
The program is similar to earlier tax-incentivized programs, like empowerment zones and enterprise zones. First, taxpayers can defer paying tax on capital gains realized from the sale of an asset if it is reinvested in an Opportunity Fund. Taxpayers can also receive an increase in basis for capital gains reinvested, allowing them to exclude up to 15% of the original capital gain from taxation. Finally, a taxpayer can receive a permanent tax exclusion from capital gains realized from a sale or exchange of an investment in the Opportunity Fund if that investment is held for at least ten years.
Opportunity360 created a mapping tool to identify which census tracts have been designated as Opportunity Zones, including 879 in California. Recent opinions on the new program have been mixed, as seen in this list of commentaries gathered by James Brasuell of Planetizen.
It’s unclear what the lasting impact of Opportunity Zones will be for the designated census tracts, but there is hope that these low-income communities will see a heightened level of redevelopment investment in the coming years, stimulating an increase in tax revenue, subsequent long-term investment, and improved quality of life.
Does your community include an Opportunity Zone? What impact do you think the legislation will have on investment in low-income communities? Contact us to share your thoughts or to get more information.