An Opportunity Zone is a designation and investment program created by the
Tax Cuts and Jobs Act of 2017
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
allowing for certain investments in lower income areas to have tax advantages. The purpose of this program is to put capital to work that would otherwise be locked up due to the asset holder's unwillingness to trigger a
capital gains tax
A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, Bond (finance), bonds, precious metals, real estate, and property.
Not all count ...
.
History
Opportunity zones were proposed by
Senators Tim Scott
Timothy Eugene Scott (born September 19, 1965) is an American businessman and politician serving as the junior United States senator from South Carolina since 2013. A member of the Republican Party, Scott was appointed to the U.S. Senate by Go ...
,
Cory Booker
Cory Anthony Booker (born April 27, 1969) is an American politician and attorney who has served as the junior United States senator from New Jersey since 2013. A member of the Democratic Party, Booker is the first African-American U.S. sena ...
, and
Representatives Ron Kind
Ronald James Kind (born March 16, 1963) is an American lawyer and politician serving as the U.S. representative for , since 1997. He is a member of the Democratic Party. The district is in the western part of the state and is anchored by La Crosse ...
,
Pat Tiberi
Patrick Joseph Tiberi (; born October 21, 1962) is an American lobbyist and politician who served as the U.S. representative for from 2001 to 2018. His district included communities north and east of Columbus. He is a member of the Republican ...
and supported by
Sean Parker
Sean Parker (born December 3, 1979) is an American entrepreneur and philanthropist, most notable for co-founding the file-sharing computer service Napster, and serving as the first president of the social networking website Facebook. He also ...
's
Economic Innovation Group.
[Tankersley, Jim (January 29, 2018).]
Tucked Into the Tax Bill, a Plan to Help Distressed America
. ''The New York Times''. Retrieved December 3, 2018. States may designate up to 25% of low-income census tracts as Opportunity Zones.
Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act, signed into law by
President Donald Trump
Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021.
Trump graduated from the Wharton School of the University of Pe ...
.
The first Opportunity Zones were designated in April 2018. There are more than 8,768 zones in the 50 states, and five U.S. possessions, including American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands.
Not all Opportunity Zones are in low income communities. In May 2018, Treasury Secretary
Steven Mnuchin
Steven Terner Mnuchin ( ; born December 21, 1962) is an American investment banker and film producer who served as the 77th United States secretary of the treasury as part of the Cabinet of Donald Trump from 2017 to 2021. Serving for a full pres ...
instructed his staff to accept a non-low-income tract (
a business area in
Storey County, Nevada
Storey County is a county located in the U.S. state of Nevada. As of the 2020 census, the population was 4,104, making it the third-least populous county, but one of the fastest-growing economies in Nevada. In 2018, over 18,000 people were emplo ...
) as an Opportunity Zone shortly after attending a
Milken Institute
The Milken Institute is an independent economic think tank based in Santa Monica, California with offices in Washington, DC, New York, Miami, London, Abu Dhabi, and Singapore. It publishes research and hosts conferences that apply market-based p ...
event in
Beverly Hills
Beverly Hills is a city located in Los Angeles County, California. A notable and historic suburb of Greater Los Angeles, it is in a wealthy area immediately southwest of the Hollywood Hills, approximately northwest of downtown Los Angeles. Bev ...
with
Michael Milken
Michael Robert Milken (born July 4, 1946) is an American financier. He is known for his role in the development of the market for high-yield bonds ("junk bonds"), and his conviction and sentence following a guilty plea on felony charges for vio ...
.
Milken was already an investor in the Nevada tract.
[ Treasury later issued a regulatory guidance that allows prior investors to benefit from newly designated Opportunity Zones.][
]
Requirements
To qualify, the Opportunity Fund must invest more than 90% of its assets in a Qualified Opportunity Zone Property located in an Opportunity Zone.[ The property must be significantly improved, which means it must be an original use, or the basis of the property must be double the basis of the non-land assets. ]Capital gain
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.
...
taxes are deferred for investments reinvested into investments in these zones and, if the investment is held for ten years, all capital gains on the new investment are waived. Despite the advantage, the Opportunity Fund has also many cons.Top Ten Reasons to Avoid Qualified Opportunity Zone Funds
/ref> Opportunity zones are census tracts designated by state authorities. As of Pari, 8,764 census tracts have been so designated.
An investor must invest in an Opportunity Fund by the end of 2019 to meet the seven-year holding period and be able to exclude 15% of the deferred capital gain.[ An investor may exclude 10% of the deferred capital gain by investing in an Opportunity Fund by the end of 2021 to meet the five-year holding period.][
An investor who realizes certain capital gain income may reinvest the capital gain in an Opportunity Fund within 180 days.][Grassi, Carl (December 1, 2018).]
Opportunity Zone program offers investors deferred gain tax benefits
. ''Crain's Cleveland Business''.
Tax benefits
Prior to the law creating Opportunity Zones, an investor could defer capital gains taxes by trading one asset with another asset in the same asset class by using a Section 1031 exchange.[Borland, Kelsi Maree (November 27, 2018).]
How Popular Will Opportunity Zones Be?
. ''GlobeSt''. ALM Media Properties, LLC. Opportunity Zones now allow an investor to defer capital gains taxes by trading one asset with another asset in a different asset class.[
]
See also
* Keystone Opportunity Zone
Keystone Opportunity Zones (KOZ) are specific commercial or industrial areas with greatly reduced or no tax burden for property owners, residents and businesses throughout the Commonwealth of Pennsylvania. Pennsylvania is also known as the Keyston ...
* Empowerment zone
* Urban renewal
Urban renewal (also called urban regeneration in the United Kingdom and urban redevelopment in the United States) is a program of land redevelopment often used to address urban decay in cities. Urban renewal involves the clearing out of blighte ...
* Gentrification
Gentrification is the process of changing the character of a neighborhood through the influx of more Wealth, affluent residents and businesses. It is a common and controversial topic in urban politics and urban planning, planning. Gentrification ...
* Special economic zone
A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increasing trade balance, employment, increas ...
References
External links
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* {{URL, https://opportunityzones.hud.gov/thecouncil, The White House Opportunity and Revitalization Council
Special economic zones of the United States
United States tax law
Presidency of Donald Trump