Enacted as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones incentivize investors to make long-term investments in low-income communities. The objective is for investors to make an impact in middle America while preserving capital gains and generating significant returns.
Opportunity Zones are a new formula for the public and private sectors to work together to generate investments, businesses, and well-paying jobs in U.S. regions that have fallen behind.
The Opportunity Zones provision is based on the bipartisan Investing in Opportunity Act, which was led by Senators Cory Booker and Tim Scott. Any entity, from large banks, financial institutions, as well as individual taxpayers can invest if they follow the guidelines set out by the statute and Treasury (currently in the process of being finalized).
The Tax Cuts and Jobs Act of 2017 (TCJA) make small reductions to income tax rates for most individual tax brackets and significantly reduces the income tax rate for corporations. TCJA also provides a tax deduction for owners of pass-through entities. Recently, President Trump signed an executive order that established the White House Opportunity and Revitalization Council to provide additional resources for Investing in Opportunity Zones. We anticipate additional guidance to establish a more complete framework for the TCJA QOZ program.
“To create brighter tomorrow for communities that have been left behind, we need to capitalize on the private sector resources that can help boost these areas in ways we haven’t seen before”
-Senator Tim Scott (R) South Carolina (USA Today, 2/14/18)
In 2018, mayors of every U.S. state were asked to identify low-income census tracts to be nominated as Qualified Opportunity Zones. Every state or territory has designated up to 25 percent of its census tracts that meet qualification requirements as Opportunity Zones.
census tracts are the basis for determining eligibility. The definition is the
same as the New
Markets Tax Credit Program. Low-income community census tracts
have an individual poverty rate of at least 20 percent and median family income
up to 80 percent of the area median [Section 45D(e)].
to 5 percent of census tracts that do not meet the definition of a low-income
community can be designated under an exemption. Exempt census tracts must be
contiguous with low-income community census tracts that are designated as
Opportunity Zones, and the median family income of the exempt tract must not
exceed 125 percent of the median family income of the designated low-income
community census tract.