The tax bill that passed in December created a new tax incentive for investment in distressed communities. The Opportunity Zone Program is designed to attract private capital to distressed communities by granting favorable capital gains treatment to investors in exchange for patient investment (of seven to 10 years) into "opportunity funds." Opportunity funds, as defined in the tax law, will invest in projects or businesses that are located in low-income census tracts that have been designated "opportunity zones."
Governors in every state and U.S. territory have until March 21 to select and nominate up to 25 percent of their existing low-income census tracts to be designated opportunity zones. The secretary of the U.S. Treasury will grant the designations. Governors may request one 30-day extension to the March 21 deadline (the extension deadline is also March 21). States that do not nominate tracts as opportunity zones by the statutory deadlines will not receive any designations.
Low-income census tracts are the same as those that qualify for the federal New Markets Tax Credit (NMTC) program—tracts with an individual poverty rate of at least 20 percent and median family income up to 80 percent of the area median. Up to 5 percent of nominated tracts do not have to meet this definition, but must be contiguous with low-income census tracts. The designation does not guarantee investment, but it makes projects within the boundaries of the opportunity zone eligible for investment by privately raised and managed opportunity funds.
Only 25 percent of a state's low-income census tracts will be designated opportunity zones. This new tax incentive begs the attention of those who seek to bring private capital to community revitalization efforts. For those interested in learning more about the designation process and mechanics of the program, here are further resources:
- CDFI Fund at U.S. Treasury
is the official source of program information and gives details on the procedure for nominating tracts
- Economic Innovation Group (EIG) provides background and history of the Opportunity Zone Program
- Enterprise Community Partners has a mapping tool for determining eligible tracts
- Novogradac & Company provides resources and details
- Missouri shows an example of a state request for proposal process for nominating tracts.