What is it?
The Tax Cuts and Jobs Act of 2017 were signed into law on Dec. 22, 2017. The Opportunity Zone (OZ) program was included in that act, which was designed to provide tax incentives to investors who fund businesses in underserved communities. Investors are able to defer paying taxes on capital gains that are invested in Qualified Opportunity Funds (QOFs), which in turn are invested in distressed communities designated as Opportunity Zones by each state.
How do investors benefit from the OZ program?
The Opportunity Zones program offers three tax benefits for investing in low-income communities through a qualified Opportunity Fundi:
- A temporary deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
- A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
- A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
How does it work?
The U.S. Department of the Treasury issued proposed regulations on the OZ tax incentive and the operation of QOFs in October 2018; final rules will not be adopted until 2019. For detailed information about eligible capital gains, QOF operations, and eligible OZ businesses, check the Treasury rules.
Where will it work?
The U.S. Department of the Treasury certified 8,700 opportunity zones. Each state, the District of Columbia, and some territories have designated opportunity zones. Grand County’s Census Tract 49019000300 is a designated opportunity zone.
Why does it matter to Moab?
The Moab community is likely to include some investors realizing capital gains right now and in the near future who can benefit from the OZ program. It also provides a vehicle for attracting capital to our area. At the end of 2017, U.S. investors faced more than $6 Trillion in unrealized capital gains. As members of our business community, you are aware of the need and potential for an infusion of capital to support the creation, retention, and expansion of business in the Moab Area.
Want more information?
- Check out the growing body of OZ program information on the web. We recommend starting with federal government websites, the Economic Innovation Group (the think tank behind the OZ program), and Community Development Financial Institutions Fund.
- Call your accountant and/or tax preparer.
- Send a request for information to Elaine Gizler, Community, and Economic Development Director, at firstname.lastname@example.org. Alternatively, call 435-259-1370.
- The CED Department is also in the process of identifying the best ways to support our business and development partners so we can maximize the benefits of Grand County’s OZ designation. We welcome your thoughts on this matter, so please consider sharing your ideas on strategy and implementation.