Included in the recently passed tax reform bill is a new program (Sec. 1400Z) designed to encourage investment into economically distressed areas.
The Opportunity Zone program is based on bipartisan legislation introduced by Sens. Tim Scott (R-SC) and Cory Booker (D-NJ) and Reps. Pat Tiberi (R-OH) and Ron Kind (D-WI). It allows a taxpayer to defer a portion of capital gains from the sale or exchange of property by investing the proceeds into low-income areas through a designated fund.
The longer the Opportunity Zone investment is held, the larger the amount that can be deferred. An investor who retains an investment for seven years will pay only 85% of the capital gains taxes that would have been otherwise due. If the investment is held beyond 10 years, the investor can permanently avoid capital gains taxes.
Under procedures set by the IRS, states have until March 21, 2018 to nominate low-income census tracts to be designated as Opportunity Zones, but states may apply for an additional 30-day extension. It is hoped that greater private investment into these underserved areas will spur increased economic activity and sustainable job creation.
Phillips Hinch
Vice President, Tax Policy
