New Tax Breaks Available for Investing in US ‘Opportunity Zones’
The Trump Administration is proposing rules for investors in a new program that it says could have a big impact on economically depressed areas around the country.
About 8,700 so-called “opportunity zones” have been set up in all 50 states to lure investors and developers with tax breaks.
The rules from the Treasury Department, issued Friday, lay out the period of time that individuals or companies must hold on to their investments in the zones to avoid paying taxes on resulting profits.
Administration officials say the goal of the program, established by the new tax law enacted last December, is to create businesses and jobs in low-income areas and lift residents out of poverty. Treasury Secretary Steven Mnuchin predicts that $100-B in private capital will be invested in the new zones.
“This incentive will foster economic revitalization and promote sustainable economic growth,” Secretary Mnuchin said in a statement.
But some critics say the new rules and the way the program is set up will benefit real estate developers and Wall Street funds, and will pull investment toward more well-off areas that need it least.
Under the rules, the investments are open to individuals, corporations, partnerships and real estate investment trusts. Any kind of business or real estate development is qualified so long as it isn’t deemed by regulators to contribute to vice — a liquor store or massage parlor, for example.
Participants can take their profits from unrelated investments and plow them into an opportunity zone fund, avoiding paying taxes on those gains until the end of Y 2026. Depending on how many years they hold the investment, they can reduce their eventual tax bill by up to 15%.
Investments within the zones held for 10 years or more are entirely free of capital gains taxes.
A new rule sets up a 70-30 split for determining if certain businesses are eligible for the tax break. Provided that at least 70% of a business’s “tangible” property sits within a zone, it is considered eligible even if the rest is outside the zone.
An example would be individual locations of a restaurant chain, some inside and some outside.
With 30% of the properties allowed outside the zones, many of the new jobs could come in already booming areas, Weaver suggested. Conventional economic development programs generally require all of a business’s property to be within the affected area
The 8,761 census tracts in every state, the District of Columbia and 5 US territories are now officially opening to investors as opportunity zones encompass some 35-M people. Based on Census data, the zones have an average poverty rate of about 32%, compared with the national average of 17%.
Governors in the states and territories put forward their choices for areas to become special development zones. Every choice, 100% of the areas proposed was blessed by the Treasury Department after a 4-month review.
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