Opportunity Zones are a designation and investment program created by the Tax Cuts and Jobs Act of 2017 that allows for certain investments in lower-income areas to have tax advantages. The purpose of Opportunity Zones is to stimulate economic development and job creation in distressed communities by providing tax benefits to investors. Opportunity Zones are economically distressed communities, defined by individual census tract, nominated by America’s governors, and certified by the U.S. Secretary of the Treasury via his delegation. States may designate up to 25% of low-income census tracts as Opportunity Zones.
Some key points about Opportunity Zones include:
-
Tax Benefits: Investors who commit capital for five, seven, and ten years can receive tax benefits, including deferral of capital gains taxes and a step-up in basis for capital gains invested in Opportunity Funds.
-
Qualified Opportunity Fund: A Qualified Opportunity Fund is any investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zone assets. The fund must hold at least 90% of its assets in qualifying Opportunity Zones property.
-
Investment Types: Opportunity Funds can invest in any Qualified Opportunity Zone property, including stocks, partnership interest, or business property (so long as property use commences with the fund, or if the fund makes significant improvements to the qualifying property) .
-
Designation: Opportunity Zone designations certified by Treasury will remain in effect until December 31, 2028.
Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act and signed into law by President Donald Trump. The first Opportunity Zones were designated in April 2018, and 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.
