Last week, I spent a day sharing my experiences working in Opportunity Zones with more than 400 of my closest friends. Gathered at a conference in Las Vegas organized by the Federal Reserve Bank of San Francisco, the Nevada Governor’s Office of Economic Development and the State Department of Business and Industry, the group was eager to learn more about how investing in Opportunity Zones could help their businesses grow.
I’m a huge supporter of Opportunity Zone development…so much so that I’m currently working with more than $150 million in Opportunity Zone projects throughout the country. Developers and property owners in many major markets are taking advantage of a new law that presents an incredible potential for profitability: the ability to designate certain census tracts as Opportunity Zones.
The Opportunity Zone program, established in The Tax Cuts and Jobs Act of 2017, is a tax incentive designed to encourage long-term private investment in low-income communities. Opportunity Zones are in census tracts must either have poverty rates of at least 20 percent or median family incomes of no more than 80 percent of statewide or metropolitan area family income.
Interested private investors must invest in opportunity funds, which can then be utilized to invest in the certified opportunity zones.
In California alone, there are 3,516 census tracts in 54 counties that qualify under one or both of the criteria. California’s Governor designated 879 tracts, and theU.S. Department of the Treasury certified all 879 of them.
At the conference, the group was shocked at the number of great areas that are prime for development within designated Opportunity Zones. Areas that are not totally in distress but prime for development have been certified as Opportunity Zones, giving developers a big incentive to invest in redevelopment.
Among these incentives is the tract’s eligibility for three tax benefits under the new law:
- Permanent exclusion of taxable income on new gains.For investments held in an Opportunity Fund for at least ten years, investors pay no taxes on capital gains produced through their investment. In other words, after ten years, the taxpayer’s basis is equal to the fair market value of the fund investment as of the date it is sold or exchanged.
- Basis step-up of capital gains invested.Capital gains placed in Opportunity Funds for specific, predetermined lengths of time deliver lucrative predefined increases to the investors’ basis; 10 percent for investments of at least five years, and 15 percent for investments of at least seven years.
- Temporary deferral of taxes on capital gains.Investors can place existing assets with accumulated capital gains into Opportunity Funds. Those capital gains will not be taxed until the end of 2026, or on the date when the asset is disposed.
If you are interested in Opportunity Zone investment in your state, email meto find out which tracts have been designated and are available. You will be surprised how many there are!