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The Great and Powerful (Tax Benefits of) OZ: Opportunity Zone Information Now Available in a Nationwide Website
Friday, October 18, 2019

When it comes to deferring capital gains and other valuable tax benefits, investors are finding there’s no place like home—provided home is near one of the 8,700 Opportunity Zones (OZs) certified by the Treasury nationwide. And investors benefiting from OZ tax incentives are not limited to real estate companies. Potential beneficiaries of these capital gains tax savings are banks, and energy companies, and hospitality services, oh my! (Just to name a few).

The federal OZ program was created under the Tax Cuts and Jobs Act of 2017 to encourage private investment in economically distressed areas across the nation. Investors in OZ projects can earn significant capital gains tax incentives, subject to certain investment terms that promote economic growth within these communities.

Initial investment in OZs was somewhat tepid, likely due in part to perceived ambiguity in the regulations. Since the initial launch, additional guidelines have been released to better define the program. And now, potential OZ investors have a new tool intended to further clarify the geographic areas and regulations associated with OZs: the www.OpportunityZones.gov website. Launched by the White House Opportunity and Revitalization Council, the OZ website provides a single, organized source of information related to OZs, including a map of OZs across the nation, tax forms, government contracting opportunities, and the text of the Tax Cuts and Jobs Act. The website also provides links to state-level agencies working with the Opportunity Zone program.

Although created by federal legislation, the OZ program is, at its heart, a locally focused initiative in which local communities have a great deal of input on how their community needs should be addressed. For example, here in Houston, the Kinder Institute has created this excellent interactive story map with detailed information on local Opportunity Zones. Indeed, several states, including Alabama, California, Connecticut, Hawaii, Louisiana, Maryland, Minnesota, New York, and Ohio, have already upped the ante with additional legislation to further incentivize investment in their designated OZs.

Designated OZs are areas with relatively low per-capita income rates (relative to their state) or a poverty rate of at least 20 percent. But these areas are also, in many cases, closely located to thriving urban areas, making them attractive areas for investment.

To take advantage of OZ investment, investors reinvest their capital gains in Qualified Opportunity Funds (QOFs). The Tax Cuts and Jobs Act designates QOFs as the means by which investors put money into Opportunity Zone projects. An investment of realized capital gains in a QOF can defer taxation of the invested gains and, potentially, reduce the tax of such investment by up to 15% if the investment is held long enough. Investors that hold their OZ investments for 10 years can expect to eliminate tax on any gains on their original investment in a QOF. While some of the tax benefits of the OZ program will be available to investors for years to come, investors must make their investments by December 31, 2019 in order to achieve maximum value.

Final regulations clarifying the OZ rules are expected at the end of 2019.

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