Last year’s tax system overhaul created a new tool for community development that provides tax incentives to unlock investor capital in underserved communities by creating Opportunity Zones. The program, championed by Senator Tim Scott (R-SC), is modeled after a South Carolina program that the Coalition and the Initiative worked on replicating in North Carolina last legislative session. This program has the potential to unlock more than $2.3 trillion in unrealized capital gains and be a powerful tool to spark investment in communities around the state.
Basics of the program
The Opportunity Zones Program provides tax incentives for qualified investors to re-invest unrealized capital gains into designated low-income communities. Investments made by Opportunity Funds into Opportunity Zones will receive three key federal tax incentives to encourage investment in low-income communities including:
- Temporary tax deferral for capital gains reinvested in an Opportunity Fund
- Step-up in basis for capital gains reinvested in an Opportunity Fund
- Permanent exclusion from taxable income of long-term capital gains
For more information on the program, Novogradac, Opportunity Finance Network and Enterprise have set up websites to provide further clarity.
What are Opportunity Funds
An Opportunity Fund is a special investment fund certified by the U.S. Treasury that must invest at least 90% of its investment into businesses or properties located in designated Opportunity Zones.
What are Opportunity Zones
Opportunity Zones are census tracts designated by the Governors of each state for future investment. Each state may designate up to 25% of its total low-income census tracts as qualified Opportunity Zones. Low-income census tracts are areas where the poverty rate is 20 percent or greater and/or family income is less than 80% of the area’s median income. The Treasury and the IRS recently published guidance for states on their selection. North Carolina has around 1,000 qualifying low-income census tracts, and may designate designate up to 251 as Opportunity Zones.
What Happens Now
Governors must submit their recommendations for Opportunity Zone designations to the Treasury Department by March 21, unless they request a 30-day extension. The North Carolina Commerce Department has set up a website with information about the process. Commerce is requesting comments through March 8, and will publish a framework for response on March 9. The North Carolina Housing Coalition encourages all of our members to provide feedback to Commerce on how the Governor should make these designations. Obviously, with 1,000 low income census tracts, the need in North Carolina is huge. How these zones are designated may create additional leverage for private investment in some communities while leaving others even further behind. It may even impact how decisions are made on the allocation of existing public funds like the Workforce Housing Loan Program. So, as stakeholders, your input is key.
Stay tuned as we keep you updated about this process and how communities might benefit from this new program.
Other News
Last week, the President released both his 2019 budget proposal and infrastructure plan. You can read more about that in our Policy Update . I had the good fortune of being in Washington, D.C. for an advocacy gathering of Habitat for Humanity affiliates from across the country. Thank you to those of you who responded to our action alert by making calls in advance of my legislative visits. It is crucial that our elected officials at the federal level continue to hear from their districts the importance of affordable housing.
