The core idea is to encourage private and public investment in economically distressed neighborhoods -- urban and rural -- across the country by providing tax breaks to investors who buy and improve property through qualified opportunity funds (QOF) that operate in opportunity zones (OZs).
There are currently 8,764 zones, each a low-income census tract nominated by their state's governor. The tax incentives for QOF investors are anchored by a temporary capital gains deferral and a permanent exclusion on long-term holdings of 10 years or more.
Writing rules and releasing reports
In December 2018, the White House Opportunity and Revitalization Council was created, and at the end of 2019, the IRS released a 544-page set of rules that it has since modified, including extending some deadlines.
The council, meanwhile, recently released a 69-page report that outlines best practices emerging so far in OZs around the country. The report details state and local government and nonprofit involvement with funds. The work by financial institutions, including some of the nation's largest, to pave the way for more financial inclusion using data and outreach is also examined.
And, it highlights early success stories that point to some locations that might merit further investigation by enterprising investors looking for the double bottom line of positive financial performance combined with positive social impact.
Council: 35 million people served by community improvement
In its first months, the council's report says, revitalization projects have delivered economic and social benefits to OZs that are home to 35 million people.
Thus, "those with capital gains are ensuring that their Qualified Opportunity Fund investments are helping to enhance community wealth and health in underserved areas," the report asserts on page 34, and it lists some examples, including QOFs that are:
- Partnering with a private company, the University of Memphis, and the Downtown Memphis Commission on the development of 30 digitally connected buildings and 115,000 square feet of office space that also will provide technology, including laptops and internet access, to 1,000 families.
- Raising capital to build a new grocery store in Fredericksburg, Virginia. The QOF itself was created by a local nonprofit food cooperative that has nearly 1,250 members, the report says, and is also leveraging loans from banks.
- Developing a 385-acre site into an industrial park along the Ohio River in South Shore, Kentucky.
- Investing in a company that grows and sells nuts in Madera, California, with the goal of attracting more investors in the area's agriculture-related industries and other companies.
- Investing in a surgery robotics company that relocated from the Silicon Valley to urban Baltimore and is expected to hire more than 100 engineers.
An emerging land of OZ
"With opportunity zones," the report concludes, "investors, entrepreneurs, and community leaders have the tools and resources they need at their fingertips to design and implement their own tailored revitalization and development plans… Ultimately, the overall success of the initiative depends upon strategic alignment of the resources best suited to meet the needs of each community."
Indeed, opportunity zones are as diverse as the country itself. Millionacres has been actively bringing you updates about the program's evolving rules -- such as increased rehab loan limits -- and areas that might be good places to look for opportunities yourself, including the fastest-growing OZs in the South, on the East Coast, and in California.
We've also interviewed attorneys working for OZ investors and answered such questions as "Should I start an opportunity zone fund?" and "Can I use owner financing in an opportunity zone?" Based on questions like these, as well as the growing billions of investment pouring into the zones, we know we'll have a lot to explore together as the ambitious OZ initiative -- combining private and public gain -- matures.
The "Unfair Advantages" of Real Estate Just Got a Whole Lot Better
Investing in real estate has always been one of the most effective paths to financial independnece. That's because it offers incredible returns and even more incredible tax breaks.
These benefits weren't enough for Uncle Sam, though, as a new tax loophole now allows those prudent investors who act today to lock in decades of tax-free returns. We've put together a comprehensive tax guide that details how you can benefit from this once-in-a-generation investment opportunity. Simply click here to get your free copy.