Treasury releases recommendations for opportunity zones

The IRS and Treasury Department have released guidelines for investing in opportunity zones.

The Trump administration published a 74-page document Friday outlining the tax law passed at the end of 2017 that created Qualified Opportunity Zones for tax breaks to investors in those areas.

Treasury Secretary Steven Mnuchin said there are $100 billion investment opportunities for real estate and businesses in distressed areas. There are approximately 8,700 opportunity zones throughout the U.S. spanning aging Rust Belt towns, low-income areas of major cities and rural swaths of the West.

“We want all Americans to experience the dynamic opportunities being generated by President Trump’s economic policies,” said Mnuchin.

The draft regulations, which will be subject to 60 days of public comment, would allow individuals, corporations and other types of businesses to invest in new opportunity funds.

The proposed regulations released clarify what gains qualify for deferral, which taxpayers and investments are eligible, the parameters for Opportunity Funds, and other guidance. The proposed regulations should provide investors and fund sponsors the information they need to confidently enter into new business arrangements in designated Opportunity Zones.

The Opportunity Zone incentive offers capital gains tax relief to investors for new investment in designated areas. Investment benefits include deferral of tax on prior gains as late as 2026 if the amount of the gain is invested in an Opportunity Fund. The benefits also include tax forgiveness on gains on that investment if the investor holds the investment for at least 10 years. Opportunity Zones retain their designation for 10 years, but under the proposed regulations, investors can hold onto their investments in Qualified Opportunity Funds through 2047 without losing tax benefits.

Working with representatives in state and local governments, earlier this year, Treasury certified 8,761 communities in all 50 states, the District of Columbia and five U.S. territories. Nearly 35 million Americans live in areas designated as Opportunity Zones. These communities present both the need for investment and significant investment opportunities.

Based on data from the 2011–2015 American Community Survey, the designated regions had an average poverty rate of over 32 percent, compared with the 17 percent national average.

Additionally, the median family income of the designated tracts were on average 37 percent below the area or state median, and had an unemployment rate of nearly 1.6 times higher than the national average.