As first reported by the New York Times, the Treasury Department released proposed guidelines for the new Opportunity Zone program. An unheralded part of the 2017 tax bill, the new legislation shifts the government’s approach to economic development by emphasizing private sector investment over public funding. Based on a concept originally developed by the bi-partisan Economic Innovation Group (EIG), Opportunity Zones represent the first community development tax-incentive program enacted since the Clinton administration.
The new regulations are designed to incentivize investment in economically distressed communities by providing substantial tax savings to investors. If successful, the Opportunity Zone program could attract the new capital necessary to support infill development around the nearly $11 billion in infrastructure and other public projects currently under construction across South Los Angeles.
Under the new plan, investors will be allowed to defer capital gains tax on any amount reinvested into an opportunity zone. The reinvested gain is then eligible to receive a “step-up” in tax basis after 5 years, and again after 7 years – potentially eliminating 15 percent of the original taxes otherwise owed on those gains. Additionally, the investor will never pay taxes on any gains made through the new investment, so long as the investment is held more than 10 years.