What are opportunity zones?
The Opportunity Zone tax incentive is a powerful new tool meant to bring private capital to underserved communities. Established by Congress as part of the Tax Cuts and Jobs Act of 2017, Opportunity Zones are designed to tap into an estimated $6.1 trillion in unrealized capital gains whereby investors can reinvest capital gains in qualified Opportunity Funds to minimize or negate applicable taxes. The Opportunity Funds must invest in low-income communities. Many of these communities are in need of public‐sector support and regulatory streamlining to ensure they develop the foundations necessary to support a thriving private sector. Public investment in economic development, entrepreneurship, education and workforce training, and safe neighborhoods — along with guidance for engaging with investors and entrepreneurs — will help communities unlock private capital to create sustainable growth.
Opportunity Zone designation and the federal administration’s channeling of resources to Opportunity Zones as a priority, creates an opportunity for local governments to leverage State and Local resources with private capital for affordable housing and job creation that are consistent with community needs.
How does opportunity zones spur economic growth?
Opportunity zones are designed to spur economic development by providing tax benefits to investors.
- First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.
- If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.
- If held for more than 7 years, the 10% becomes 15%.
- Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.