America’s corporate tax rate is no longer the most controversial part of the Tax Cuts and Jobs Act of 2017. A then-little-known provision establishing tax incentives for investment in Opportunity Zones – legally designated, economically-distressed census tracts – has generated debate nationwide. Within many of the designated areas, the prospect of fresh capital has been greeted with enthusiasm.
Misconception #1: Opportunity Zones benefit investors more than distressed communities.
Of course, investors will benefit from Opportunity Zones. The incentive is designed so that investors liquidate unrealized capital gains, moving their capital into investment funds created specifically for Opportunity Zone projects. The benefits are threefold: investors can potentially be granted immediate tax deferral for qualifying gains invested in Opportunity Zone funds; up to 15% of the original capital will remain tax-exempt indefinitely if left invested for at least seven years; and capital gains accruing from Opportunity Zones projects will be entirely tax-exempt if held for at least ten years. Clearly, this legislation offers investors a powerful incentive.
Yet there is great potential for communities to benefit as well. While government funding is contentious, over $6 trillion in unrealized capital gains lies untapped, and there is significant demand for investment capital throughout the country. The average poverty rate across the 8,762 Opportunity Zones is estimated to be nearly 31 percent, in contrast to a national average of 12 percent, and the unemployment rate of 14.4 percent is well above the 3.8 percent national average. Meanwhile, post-recession economic growth is concentrated in a small number of wealthy metro areas; five of these areas alone produced as many new businesses as the rest of the country combined from 2010 to 2014, according to the Economic Innovation Group.
It is clear that without intervention, distressed communities are unlikely to realize the kind of economic development needed to reduce poverty – if they realize economic growth at all. That’s why Opportunity Zones were designed to be sizeable, commensurate with Main Street America’s need for capital. But more than this, they have been designed to empower the very communities that successive interventions have left behind.
Read the full FORBES article and learn about Opportunity Zone misconceptions HERE.
Explore Sixty West Funds approach to Opportunity Zones and learn more about our $840M Targeted Property Pipeline HERE.