Tucked into the recently-enacted Tax Cuts and Jobs Act was a provision to encourage investors to put capital in distressed communities. Dubbed “Opportunity Zones,” this provision allows governors to nominate low-income communities within their states to receive the Qualified Opportunity Zone designation from the Department of Treasury.
Once in place, investors will be able to defer capital gains taxes when they choose to reinvest their earnings in these communities. Additional incentives accrue over time, encouraging investors to provide patient, long term capital so often lacking in distressed communities.
There is only a short window for governors to nominate Opportunity Zones. They must submit their recommendations to the Department of Treasury by March 21, 2018, or else they must request a 30-day extension. Each state’s governor may nominate up to 25% of its low-income community tracts to receive the Opportunity Zone designation. Once tagged an Opportunity Zone, a region will retain that status for 10 years.
The IRS has put out a notice with information on the zone nominating process. QOZ eligibility is based on the 2011-2015 American Community Survey (ACS) 5-Year data from the Census Bureau.
You can learn more from Economic Innovation Group, which led the research effort behind this new national community investment program that connects private capital with low-income communities across America.
Why This Might Matter to Your Foundation?
In a recent speech in Cincinnati, President Trump obliquely touted the Qualified Opportunity Zones (QOZs) as a feature of the tax overhaul. In another sign that things may be moving forward with the program soon, the IRS included it in their recently updated priority guidance plan for the next year. If you have interest in shaping the designated Qualified Opportunity Zone, we encourage you to reach out to your respective state officials soon, particularly if you serve a small region or city. Once the Zones are set, it is unclear how they might be changed. Foundations can and should play a role in supporting the eco-system that will ensure these funds be successful.
- U.S. Impact Investing Alliance
- Community Development Financial Institutions Fund
- CDFI Fund Map of All Census Tracts Eligible for Designation as a Qualified Opportunity Zone - The CDFI Fund has identified over 41,000 population census tracts that are eligible for designation as a QOZ, including (1) 31,680 population census tracts that are Low-Income Communities (LICs) eligible for designation as QOZs; and (2) 9,453 non-LIC population census tracts that are eligible for designation if a particular LIC contiguous to the non-LIC tract is designated as a QOZ. Contiguous Tracts must be at or below 125% of the area median income.
- Tucked Into the Tax Bill, a Plan to Help Distressed America, The New York Times
- Opportunity Zones Provide New, If Flawed, Community Investment Vehicle, Nonprofit Quarterly