Different areas of Philadelphia have been designated as Opportunity Zones, part of a new economic stimulus plan signed into law by the Trump Administration in 2017. The Secretary of the Treasury has predicted 100 billion dollars will be invested into these Opportunity Zones, but what are they, exactly? And how can you take advantage of them as an investor?
Opportunity zones were designed by the Economic Innovation Group, a think tank in Washington DC known for its innovative capital solutions. EIG defines Opportunity Zones as, “A new national community investment tool that connects private capital with low-income communities across America.” Simply put, Opportunity Zones are government-incentivized regions of investment for private financiers, and for many, they will be the tax break of the century.
An Opportunity Zone is a specific census tract nominated by its residents, confirmed by the governor of its state, and recognized by the US Treasury. To qualify, an Opportunity Zone must be an economically underdeveloped geographical region, lacking in new housing and commercial properties. Income, poverty-level, and population size were all taken into account when drawing boundaries for opportunity zones. These zones are meant to benefit both investors and inhabitants as they provide tax deferments and incentives to lenders and goods and services to economically depressed communities, thus stimulating otherwise stagnant economies
The primary benefit of Opportunity Zones for investors is that they defer and reduce capital gains taxes. Normally, as all investors will lament, capital gains taxes devour a significant chunk of realty sales. Now, instead of paying the IRS for your profit on a good investment, you can defer taxation until 2027 and further invest this profit in an Opportunity Fund, an IRS and Treasury designed fund for each Zone. There are a host of other benefits, such as tax-rate reductions according to the length of of your investment in the Zone, as well as no taxation on any additional appreciation of the investment, so long as it’s kept in the Opportunity Zone for ten years.
If you’re interested in placing your capital gains into an Opportunity Fund, it’s best done through a private finance, realty or accounting firm. There are many options available, all with their own arrangements and fee schedules. It’s best to comparatively shop, asking each Fund provider why their model is superior to any other on the market. With enough knowledge of the existing rules and regulations, it’s also possible to create your own fund and invite others to invest.