Since the first of the year, there has been lots of buzz about Opportunity Zones. Many know the program as part of the Tax Overhaul Act of 2017, developed to encourage private investment in economically distressed communities in exchange for a break in capital gains tax obligations. In this program, investors may fund a variety of qualified investment opportunities in Opportunity Zone locations, including real estate investments, which is where we have had experience. In the case of real estate, if the investment is held for a compliance period of seven years, then only 85% of the gain is taxable. If held an additional three years, the entire capital gain tax liability is forgiven.
While the program covers a variety of initiatives in these zones, on the real estate side, I have only seen evidence of a couple of projects where the Opportunity Zone investment criteria made a difference. The devil has been in the details as the service has defined the rules and regulations that congress passed, but I believe the popularity of the program will grow as folks get their arms around all its intricacies.
In my experience, nothing worthwhile is done without a few naysayers. In this case, some are saying that Opportunity Zones may “speed up gentrification,” but to me, the positive will far outweigh any negatives by a long shot.