New Tax Law Opportunity Zones Promote Investment in Economically Distressed Areas

New Tax Law Opportunity Zones Promote Investment in Economically Distressed Areas

The new tax law passed in 2018 provides commercial real estate investment opportunities with the establishment of new regulations that permit Opportunity Zones.  South Carolina Senator Tim Scott and U.S. Representative Ron Kind (D-WI) were promoters of the concept and helped push through the legislation which gained bipartisan support from both Houses of Congress.  The Opportunity Zones were created as part of the 2017 Tax Cuts and Jobs Act to promote investment in regions of the country that were struggling economically. 

Opportunity Zones Designated in All 50 States

There are Opportunity Zones designated in all 50 states and the District of Columbia.  Investors are able to invest in these regions themselves or buy shares in Qualified Opportunity Funds to invest in designated zones. 

“More than 50 million Americans currently live in distressed zip codes,” said U.S. Senator Tim Scott.  The investing in Opportunity Zones is innovative, bipartisan legislation that would incentivize long-term investment in these communities, without creating a new government program.  It offers a temporary capital gains deferral in exchange for reinvesting those dollars into distressed communities over the long term.”

Representative Kind said “this bipartisan legislation helps fund a new generation of entrepreneurs and enterprises in economically distressed areas of the country.  It assists in overcoming barriers to investment by providing temporary capital gains deferral in exchange for reinvestment in distressed communities.”

Opportunity Zones Already Prompting Commercial Real Estate Investments

The Treasury Department explained in October how the Opportunity Zone investments would work.  “Investment benefits include deferral of tax on prior gains as late as 2026, if the amount of the gain is invested in an Opportunity Fund.  The benefits also include tax forgiveness on gains on that investment if the investor holds the investment for at least 10 years.  Opportunity Zones retain their designation for 10 years, but under the proposed regulations, investors can hold onto their investments in Qualified Opportunity Funds through 2047 without losing tax benefits.”

Opportunity Zones are already prompting investment with a 58 percent increase in deals in the designated zones in the third quarter of 2018 compared to the third quarter of 2017, according to the Wall Street Journal. Nationwide there has been an increase in investment by 11 percent in the designated zones, with investment interest soaring even before an Opportunity Zone is established.

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