By Opportunity Zone Expo Staff
The Treasury has certified more than 8,700 areas nationwide as opportunity zones, home to 35 million residents. Opportunity Zones can provide favorable capital gains for taxpayers with unrealized gains who invest in the struggling areas. The funds could funnel an infusion of investor money to neighborhoods and towns starved for investment and address issues like poverty, unemployment and economic inequality.
Opportunity zones benefit two groups – those with large investment profits and low-income communities.
“Opportunity Funds will create a new incentive for investors to invest in low income neighborhoods. These investments can be in the form of affordable housing projects, other residential projects and commercial projects that create jobs,” says attorney Nicholas F. Talvacchia, of Cooper Levenson in New Jersey.
Talvacchia says that while the tax benefits are not likely to result in investment in low income areas with low growth potential, the tax benefits will certainly make otherwise marginal investments worthwhile investments.
Congress created Opportunity Zones to deliver investment to economically distressed neighborhoods in its 2017 tax bill. The program can be beneficial to investors as they can defer capital gains on a previous investment when the funds are reinvested into a zone within 180 days.
“Opportunity Zones could have a positive impact on minority or low-income communities, as these zones may attract investment dollars for needed projects, such as low-income housing, conveniently located retail establishments in areas that are currently underserved, or facilities for nonprofit organizations,” says attorney Owen Blank, a partner at Tonkon Torp in Oregon.
However, the impact of opportunity zones is too soon to tell, says Laurel Blatchford, president of Enterprise Community Partners, a Maryland-based nonprofit that creates affordable housing opportunities.
“Opportunity Zones have great potential to advance equitable and inclusive economic growth – but fulfilling that potential requires transparency and accountability. The just-released regulations stay silent on reporting requirements, though they do include a note that proposed rules on information reporting are coming in a second set of regulations,” says Blatchford.
Blatchford says Enterprise is currently collaborating with others in the field to understand how the proposed regulations would likely affect the affordable housing and community development fields and their work with low-income communities. She says developing effective and efficient guidance depends on input from federal, state and local officials, nonprofits, investors, fund managers and community members.
“We plan to submit our recommendations within the 60-day comment period and encourage others to weigh in as well,” says Blatchford.
Talvacchia says commentators have raised concerns over whether the investments will benefit current low-income residents in terms of job creation. He says there is also concern regarding the risk for displacement of low income residents from areas with new projects due to Opportunity Zone investments.
“On balance, new investment should have a net positive impact on low income areas, but like most incentive programs that encourage growth, there will be some who benefit more than others and some who won’t see any benefit,” says Talvacchia.