What is an Opportunity Zone?

The Internal Revenue Service (“IRS”) describes the Opportunity Zones as economically-distressed communities where new investments may be subject to preferential tax treatment, according to the criteria laid out in the Tax Cuts and Jobs Act. These low-income communities must be designated as a qualified Opportunity Zone in order to benefit from the tax incentives and each state has a limited number of “population census tracts” (neighborhoods as determined by the Bureau of Census) that can be designated as qualified Opportunity Zones.

How are Opportunity Zones Created?

Opportunity Zones are designated

What are the Benefits of Investing in Opportunity Zones?

• You can defer the capital gain tax
• Possible reduction of the amount of gain realized through a basis adjustment; and

Possible permanent exclusion of gain on the appreciation for the interest in an Opportunity Fund

The 2017 Tax Cuts and Jobs Act established a section of the tax code that allows taxpayers to utilize a new investment vehicle called “Opportunity Funds”, in an effort to bring resources to low income communities known as Opportunity Zones.

What is an Opportunity Zone?

The Internal Revenue Service (“IRS”) describes Opportunity Zones as economically-distressed communities where new investments may be subject to preferential tax treatment, according to the criteria laid out in the Tax Cuts and Jobs Act. A low-income community must be designated as a qualified Opportunity Zone in order to benefit. Each state has a limited number of “population census tracts” (neighborhoods as determined by the Bureau of Census) that can be designated as qualified Opportunity Zones.

How are Opportunity Zones Created?

Opportunity Zones are created by a nomination and designation process. The Tax Cuts and Jobs Act laid out criteria for governors to designate potential Opportunity Funds for nomination. Up to 25% percent of low-income communities could be nominated. Low-income communities requirements are defined by the Internal Revenue Code Section 45D(e) as any neighborhood where:

• The poverty rate is at least 20 percent; or
• In a non-metropolitan area:
  • the median family income does not exceed 80% of statewide median family income; or
• · In a metropolitan area:
  • the median family income does not exceed the 80% of statewide median family income and does not exceed the metropolitan area median family income.

In addition, 5% of each jurisdiction could qualify to be nominated if they met income and geographic criteria, including:

• that the neighborhood shares a border with a low-income community; and
• the median family income is no more than 125% of the median family income of the neighborhood it shares a border with.

Where are Opportunity Zones?

Opportunity Zones have been designated in every state and the U.S. territories. For an up-to-date detailed map published by the U.S. Department of the Treasury, click here.

What are the Benefits of Investing in Opportunity Zones?

• You can defer the capital gain tax
• Possible reduction of the amount of gain realized through a basis adjustment; and
• Possible permanent exclusion of gain on the appreciation for the interest in an Opportunity Fund

If you are interested in starting an Opportunity Zone Fund, reach out to Wilson Bradshaw & Cao, LLP and realize potential tax benefits.

Wilson Bradshaw & Cao, LLP is a boutique securities law firm in Irvine California and New York City. We help businesses solicit investors for both public and private companies in a compliant manner. We restrict our practice to securities law, focusing on private and public offerings and SEC enforcement work.

There is an estimated $6.1 trillion of paper profits currently held by investors on American balance sheets. Those gains are not yet taxed, and 8,700 areas in the United States, ranging from rusty industrial towns to dusty rural hamlets, are in desperate need of revitalizing investments. The Trump Tax Act of 2017 (Tax Cuts and Jobs Act of 2017) contains a tax incentive that will be a huge benefit to both of those groups. It is officially called the Investing in Opportunity Act.

This act had its beginning in 2007 when a young billionaire, Sean Parker, met with Senator Timothy Scott of South Carolina. Both were seeking a solution to getting more investments into run down neighborhoods. After forming a coalition of other billionaires, congress representatives and senators, then working together for almost ten years, the bill finally became law.

Forbes Magazine says investors will soon be able to plow recently realized capital gains into projects or companies in Opportunity Zones, slowly erase the tax obligations on a portion of those gains and, more significantly, have those proceeds grow tax-free. There are almost no limits. No limits on how much you can put in, how much tax you can avoid and, for most of the country, the types of taxes you can avoid, whether federal, state or local. No limits on how long those proceeds compound tax-free. And precious few limits on what types of investments you can make.

Parker says, “The incentive needs to be powerful enough that it can unlock large amounts of capital, aggregate that capital into funds and force the funds to invest in distressed areas. Instead of having government hand out pools of taxpayer dollars, you have savvy investors directing money into projects they think will succeed.”

Senator Cory Booker, a New Jersey Democrat who cosponsored the bill, said, “If we can get the trillions of dollars of capital off the sidelines and get the best investment minds coming into our communities, we can end up creating jobs and opportunity.”

“The great thing about this legislation is it can bring together sectors that may not have worked together before,” says Jim Sorenson, a Utah-based entrepreneur and impact investor who was an early part of Parker’s coalition. “There can be a great collaboration between state and local entities to add more incentives to further sweeten the pot.”

The attorneys at Wilson, Bradshaw & Cao, LLP are happy with this new tax incentive for investors, and are prepared to assist you with setting up an Opportunity Fund, and advising you about all the options for investing into it.