Tax Incentives Promote Community Development
Updated: Apr 14, 2018
The federal tax legislation known as the Tax Cuts and Jobs Act of 2017 includes a beneficial new method to promote community economic development. The Opportunity Zones Program allows investors to defer capital gains taxes when funds are reinvested in Opportunity Funds which, in turn, invest in certain low-income census tracts as known as opportunity zones.
The governor of each state may nominate up to 25 percent of its eligible low-income census tracts to become qualified opportunity zones. The office of Governor Rick Scott is working with the Florida Department of Economic Opportunity to compile a list of census tracts to nominate, which must be completed by March 21, 2018, or the Governor must request a thirty-day extension. The U.S. Department of Treasury will have 30 days from receipt of the Governor’s list in order to certify the list or provide further written guidance.
Each Opportunity Fund invests in qualified opportunity zone property. The applicable qualified opportunity zone property may be stock, partnership interests or business property. The businesses issuing the stock or partnership interests must receive more than half its income from the active conduct of a trade or business, the business uses a substantial portion of its intangible property in such active conduct and substantially all of its tangible property is qualified opportunity zone business property, which must be acquired by purchase or new or used property which is substantially improved.
One difference between the tax benefits offered under the opportunity zone program and tax deferred exchanges is that the typical like kind exchange involves an investment of the amount of basis and gain from the prior vehicle. The new program provides a shelter against gain recognition by investing only the amount of the gain. Further, if the opportunity fund investment is held for at least 10 years, no gain on the prior investment is recognized.
Whether the new opportunity zone provision in the tax code will end up providing a benefit to community economic development or a boon to the well healed investor class will depend in part on the selection of census tracts.
For more information, please refer to the Florida program website at http://www.floridajobs.org/business-growth-and-partnerships/for-businesses-and-entrepreneurs/business-resources/opportunity-zones