What are Opportunity Zones?

Opportunity Zones are an economic development tool that incentivizes investment in distressed communities. The program was designed to offer additional incentives to private investors to encourage support for underserved communities and help spur economic development in the rural and urban communities that need it most. If successful, Opportunity Zones may be able to increase affordable housing, prevent gentrification, promote job growth and support workforce development.

Source: https://opzones.ca.gov/about/

How do OZs differ from other financing tools?

Opportunity Zones differ from other economic development tools such as Empowerment Zones, Enterprise Zones or Promise Zones, which are federal assistance or grant programs for communities.  Opportunity Zones are a tool to harness private investment in designated census tracts. OZ investors will receive tax incentives in exchange for place-based investments. Tax incentives include:

• No up-front tax bill on federal capital gains rolled into a Qualified Opportunity Fund.
• If investments are held for five years, 10% increase in rolled-over federal capital gains basis.
• If investments are held for seven years, 15% increase in rolled-over federal capital gains basis.
• Investors can defer their original tax bill up to seven years, until December 31, 2026 at the latest, or until they sell their Opportunity Fund investments, if earlier.
• Opportunity fund investments held in the fund for at least 10 years are not taxed for federal capital gains.

Source: https://opzones.ca.gov/

Federal & State Regulations

• The United States Treasury’s Community Development and Financial Institutions Fund and Internal Revenue Service are still developing revised guidelines for investment in Opportunity Funds. The newest revisions were released in April 2019.
• The State of California is also considering changes to its capital gains taxes in 2019. The Governor’s Office of Business and Economic Development (Go-Biz) is the lead agency coordinating a statewide inter-agency working group. For the latest information on State regulations, visit the Go-Biz website