understanding what are opportunity zones
Opportunity Zones are an economic development tool, intended to drive community restoration and job creating in distressed areas by providing capital gains tax benefits to investors who invest into Qualified Opportunity Funds (“QOF”).
The concept of Opportunity Zones initially came well known philanthropist and American entrepreneur, Sean Parker, who co-founded the Washington based economic think tank know as the Economic Innovation Group (EIG) who pioneered the program into legislation. A group of Republicans and Democrats introduced bills in the House and Senate to create opportunity zones in 2016, but the measures never reached a floor vote. One of the sponsors, Senator Tim Scott, a Republican from South Carolina, successfully pushed for a modified version that was tucked into the tax overhaul
The impetus behind the program is to drive capital into areas that have failed to keep up with growth with superstar metropolitan areas by incentivizing and empowering entrepreneurs and investors to deploy their capital gains to revitalize these distressed communities.
The IRS defines an Opportunity Zone as:
“an distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment”
In order to qualify as an Opportunity Zone, locations had to be low-income (“LI”) census tracts or contiguous to LI census tracts and be designated as such by the state and certified by the Secretary of the US treasury. State governors could choose up to 25% of their eligible LI census tracts and the designation as an Opportunity Zone would stay in place for 10 years without modification.
Opportunity Zones were then designated in every state and territory in the United States. Due to uneven economic growth in the United States, a handful of cities are booming, while much of the country -- from rural counties to aging Rust Belt towns -- get left behind. Giving investors an incentive to deploy some of their $6 trillion in unrealized capital gains into these distressed communities could help jump-start growth, create jobs and lift incomes. Nearly all of the opportunity zones have poverty rates north of 20 percent or family incomes that are lower than 80 percent of the state or metro median.