WHAT ARE OPPORTUNITY ZONES?
The Opportunity Zones program is a federal tax incentive. Opportunity Zones are not a grant and do not guarantee funding for projects. However, the tax incentive does provides an opportunity to market our local projects to investors nationwide who we might not otherwise have been able to attract.
KEY TERMS AND BACKGROUND
With all of the jargon employed by journalists, lawmakers, municipal governments, etc., we are providing a set of key terms and background with examples where relevant.
Opportunity Zones: low-income census tracts that were nominated by governors and certified by the U.S. Department of Treasury in which an investor can invest their capital gains and receive tax treatment. This program was launched as the Investing in Opportunity provision in the 2017 Tax Cut and Jobs Act bill.
Opportunity Funds: New investment vehicles that invest at least 90% of their capital gains in assets in Opportunity Zones.
Capital gains: profits from selling a property or an investment such as stock (i.e. I have a stock that I bought for $5 that I sell for $11. While unsold, I have $6 of unrealized capital gains. When I sell, I have $6 of realized capital gains that I can then invest into an Opportunity Fund. This can then invest in an Opportunity Zone).
Census Tract: A unit of geographical analysis. These do not overlay neatly on zip codes, neighborhoods or council districts.
Opportunity Zone Incentives: Here are the incentives that investors can expect when they invest their gains into an Opportunity Fund.
Temporary tax deferral-Investors don't have to pay capital gains taxes right away when they invest their money into Opportunity Zones. They pay when they remove their money from Opportunity Zones.
Step-up in basis-If the taxpayer holds their investment for 5 years, they only pay capital gains taxes on 90% of the investment they originally put into the fund. If an investor holds an investment for at least 15 years, they only pay capital gains taxes on 85% of the investment they originally put into the fund.
Permanent exclusion from taxable income of capital gains-If an investor holds an investment for at least 10 years, they do not have to pay taxes on any profit accrued with their original investment.