Thanks to these new guidelines, Opportunity Zone Funds can now incorporate multiple properties into a single investment vehicle, provided they meet the designation criteria. This allows for a diversified portfolio with a single investment, meaning your overall investment benefits from spreading the risk across multiple properties. So, even if one property underperforms, the more successful deals can level things out.
Opportunity zones are designated census tracts that house low-income communities. Within these designated zones, investors of all kinds essentially get a tax break if they invest in the community with real estate or a business. Governors were able to nominate 25% of their low-income census tracts for the designation. The first opportunity zones, according to the IRS, were designated in April of last year.
Opportunity Zones have been hailed as a boon for the poor, and lambasted as a boondoggle for the rich, but how would anyone know for sure? Thanks to a snafu in Congress, there are no requirements that people participating in the potentially lucrative economic development program detail what they are doing, where they are doing it and why they are doing it.
There’s no question that the new Opportunity Zone program is generating enthusiasm in most economic development quarters, along with a measure of trepidation in others. But no one knows how to prove success or failure from Opportunity Zones, which were created by the 2017 tax overhaul, H.R. 1 (115), to boost economic development in struggling areas.
The New Proposed Regulations provide more flexibility in the way taxpayers can qualify for the benefits of the Opportunity Zone tax incentive program. With limited exceptions, taxpayers are permitted to rely on the New Proposed Regulations before they are finalized. These largely favorable regulations enhance scalability and are likely to lead to increased investment in Qualified Opportunity Zones.
The zones, designated low-income communities based on census data, are part of a program created in the 2017 federal Tax Cuts and Jobs Act that will allow big institutional investors, such as banks, to defer capital gains and earn tax-free interest by putting their money into housing and business development efforts within the areas.
Opportunity zones present a great tax advantage to real estate investors in the US housing market. So it’s no surprise that once more guidelines were put in place and clarified earlier this year, demand from investors would shoot up in these regions across the nation. The result? Property prices have increased significantly.
Without a coordinated effort that includes policymakers, investors, fund managers and philanthropists, Council members are concerned the residents of the Opportunity Zones won’t have a voice, could be displaced if their neighborhoods become gentrified and “are at risk of losing out and falling further behind, while Zones in already-gentrifying parts of urban areas like New York City or Washington, D.C., continue to draw the lion's share of development capital,”...
Opportunity zones have been a hot topic in the impact finance industry since their announcement, but do CDFIs and other impact lenders have a role to play? Michael Swack and Charles Tansey think so. They join us on this episode to discuss their recent white paper, “The Potential Role for CDFIs in Opportunity Zones,” which was published by the University of New Hampshire Carsey School of Public Policy with the support of Enterprise Community Investment.
The end of 2019 marks a major deadline for investors seeking to use the 2017 tax law provision to shelter 15% of their profits from stocks and other investments, particularly from real estate, from taxes. In return for the tax break, they must hold their investments in mostly low-income opportunity zone census tracts for seven years, under tax code Section 1400Z-2.