Today, the leading Republican on the House Ways and Means Committee Kevin Brady (R-TX) weighed in after the Treasury Department released additional proposed regulations regarding “Opportunity Zones,” a provision of the Tax Cuts and Jobs Act. Brady was a leading architect and champion of that act.
“Since the GOP Tax Cuts were signed into law, this economy continues to soar across every corner of our country. More folks are working, paychecks are growing, and communities left behind for too long are taking part in this economic expansion.
“Opportunity Zones, one of the many pro-growth provisions of our new tax code that are bringing increased investment and optimism to communities that need it most, will continue to lift this economy – especially for low- and middle-income workers who, today, are experiencing the fastest level of wage gains. This provision will help private dollars gravitate toward long-term investments to these areas, creating more jobs while stimulating higher growth and local innovation.
“Secretary Mnuchin and his team at Treasury have done an excellent job implementing this new tax code. These additional regulations will provide greater technical guidance for private investors seeking to invest in Opportunity Zones, helping our economy continue to march forward for working families.”
For background, here are some important frequently ask questions about the Zones and answered by the IRS:
Q. What is an Opportunity Zone?
A. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.
Q. How were Opportunity Zones created?
A. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.
Q. Have Opportunity Zones been around a long time?
A. No, they are new. The first set of Opportunity Zones, covering parts of 18 states, were designated on April 9, 2018. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.
Q. What is the purpose of Opportunity Zones?
A. Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
Q. How do Opportunity Zones spur economic development?
A. Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
Q. What is a Qualified Opportunity Fund?
A. A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
Q. Do I need to live in an Opportunity Zone to take advantage of the tax benefits?
A. No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.
Q. I am interested in knowing where the Opportunity Zones are located. Is there a list of Opportunity Zones available?
A. Yes. The list of designated Qualified Opportunity Zones can be found at Opportunity Zones Resources and in the Federal Register at IRB Notice 2018-48. Further a visual map of the census tracts designated as Qualified Opportunity Zones may also be found at Opportunity Zones Resources.