Opportunity Zones were created by the Tax Cuts and Jobs Act of 2017 to promote investment in economically distressed areas by giving preferential tax treatment under certain conditions. The Opportunity Zones were designed as an economic development tool to spur job growth and economic development in designated zones.
Opportunity Zones Provide Significant Tax Benefits to Investors
Opportunity Zones give significant tax benefits to those who invest in these areas that are struggling economically. When an investor sells an asset, it is now possible to defer paying capital gains taxes until 2026 if the gain is reinvested in Qualified Opportunity Funds, the vehicle created to allow investors to buy shares to invest in Opportunity Zones. The IRS also states that “if an investor holds the investment in the Opportunity Fund for at least 10 years, the investor would be eligible for an increase in basis equal to the fair market value of the investment on the date that the investment is sold or exchanged.”
There are Opportunity Zones designated in all 50 states and the District of Columbia. South Carolina U.S. Senator Tim Scott and U.S. Representative Ron Kind of Wisconsin promoted the concept and helped push through the new tax law that created Opportunity 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.”
Investment in Opportunity Zones is Impacting Where Real Estate Development is Headed
Opportunity Zones are already changing the commercial real estate industry and where development is headed, especially in areas close to existing urban development. In the last year, there was a 58 percent increase in deals in the designated zones according to the Wall Street Journal. Nationwide there has been an increase in investment by 11 percent in Opportunity Zones, with a renewed interest in investing in these economically distressed areas due to the many tax benefits.
Caldwell Commercial keeps abreast of global and local economic trends to best serve the needs of our clients. Contact us today to learn more about our commercial real estate properties and services.