Tax Breaks Open Up ‘Opportunity Zones’ for Investors
October 22, 2018
Investors could be eligible for significant tax breaks when purchasing property in distressed economic areas across the country that the U.S. Treasury Department has labeled “opportunity zones.” Treasury Secretary Steve Mnuchin predicts that the newly designated zones could attract up to $100 billion in investment.
The goal is to draw capital to areas where investment has lagged since the Great Recession by allowing investors to avoid some taxes when they fund projects. Capital gains in a certified opportunity zone fund could avoid being taxed through the end of 2026 or when the investment is sold, whichever comes first. Any gains from the fund will be permanently shielded from taxes if the investment has been held for at least 10 years. Also, after seven years, the initial investment will be discounted by up to 15 percent for tax purposes.
The Treasury Department says that a large scale of projects could qualify for the tax break, too, such as capital for startup businesses in opportunity zone areas. Individuals, corporations, businesses, REITs, and estates and trusts are all eligible for the tax break. The Treasury Department will be issuing more guidance before the end of the year. Governors have designated eligible census tracts as opportunity zones in their communities. You can view the full list at the Department of Treasury’s website.
“The creation of opportunity zones is one of the most significant provisions of the Tax Cut and Jobs Act,” Mnuchin said earlier this year. “Incentivizing private investment into these low-income communities can be transformational, stimulating economic growth and job creation across the country. This administration will work diligently with states and the private sector to encourage investment and development in opportunity zones and other distressed communities so that they may enjoy the benefits of robust economic growth.”
“Treasury Outlines Tax Breaks for Investing in Distressed Areas,” The New York Times (Oct. 18, 2018) and “Investors Can Get Big Tax Breaks if They Invest in ‘Opportunity Zones’ Under New Treasury Rules,” CNBC (Oct. 19, 2018)
Updated: October 23, 2020