‘Opportunity Zones’ Incentivize Developers and Investors
An update to the tax code in 2017 caught the eyes of those looking for tax benefits with just two simple words: “opportunity zone.” Designed to increase investment in economically underrepresented areas throughout the country, this new program is a development tool providing tax incentives to investors and developers.
To take advantage of this opportunity, there first needs to be capital gains invested in a “Qualified Opportunity Fund” created specifically for investment in these projects. By investing gains from previous asset sales into an opportunity zone project, it grants investors a deferral of those capital gains. Additionally, if an investor holds the opportunity zone investment for at least five years, the program offers a ten percent discount on the capital gain tax. If an investor stays invested for seven years, the discount is fifteen percent. And after ten years, there is no tax on any of the capital gain realized from that particular project.
There are a total of 8,764 opportunity zones throughout the United States selected by the Department of the Treasury. The number of zones differs per state. Larger states have a greater number, for example, California has 879 zones whereas Minnesota has 128. About a third of Minnesota’s zones are located within the core metro area, with 44 zones in Hennepin and Ramsey County.
Currently, there are not many opportunity zone projects in the works throughout the state, as the regulations released in 2017 only provided partial guidance on the program. Further, there is no present tax break on Minnesota state taxes for opportunity zone projects, thus making interested parties a bit weary to invest.
Cities with opportunity zones are looking for investors who want make positive social impacts with their investments. This program creates the opportunity to direct investment into areas that really need it, and there are many areas that have great potential to create lasting change.