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Opportunity Zone Program


Created by the Tax Cuts and Jobs Act of 2017, the Opportunity Zone Program drives private investment to urban and rural low-income communities. Those willing to invest in areas designated as "Qualified Opportunity Zones" are eligible for preferred tax treatment of their capital gains. The program may be used to spur private investment in small businesses and in commercial and housing projects in low-income areas.

The governor of each state nominated up to 25% of its low-income community census tracts (as designated under the New Market Tax Credit program). Certain adjacent census tracts were eligible to be nominated as well. The U.S. Treasury received each governor's nominations and approved and designated the Qualified Opportunity Zones. Those designations will remain in place for 10 years to encourage long-term investment in the selected communities. The official U.S. Treasury map of designated Qualified Opportunity Zones can be found here.

Investors are able to invest their capital gains in "Qualified Opportunity Funds" that make investments in Qualified Opportunity Zones.
Investor tax benefits include:
 
  1. A temporary tax deferral for capital gains properly reinvested in a Qualified Opportunity Fund within 180 days of the of the applicable sale or exchange.
  2. A step-up in basis for capital gains invested in a Qualified Opportunity Fund. The basis of the original investment is increased by 10% if the investment in the Qualified Opportunity Fund is held by the taxpayer for at least 5 years. The basis is increased by an additional 5% if the investment is held for at least 7 years, excluding up to 15% of the original gain from taxation.
  3. A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Qualified Opportunity Fund, if the investment is held for ten years. This exclusion applies only to the gain from the investment in the Qualified Opportunity Fund and does not apply to the original capital gain deferred through the investment in the Qualified Opportunity Fund.
Investors may establish their own Qualified Opportunity Fund or pool their resources into another Qualified Opportunity Fund.

Qualified Opportunity Funds must invest at least 90% of their resources in certain business property or in stock or a capital or profits interest in a "Qualified Opportunity Zone Business."

Any business property or stock or partnership interest must be acquired solely for cash from an unaffiliated party. Stock or partnership interests must be purchased at its original issuance, and the original use of the business property must occur with Qualified Opportunity Fund's investment or must be substantially improved by the Qualified Opportunity Fund's investment within 30 months.

A Qualified Opportunity Zone Business must be located in a Qualified Opportunity Zone and derive at least 50% of its income from its active conduct. Certain businesses such as golf courses, massage parlors, hot tub or suntan facilities, gambling facilities and liquor stores do not qualify.

Investors, developers and entrepreneurs may combine the Opportunity Zone Program with other federal, state and local programs, like New Market Tax Credits and Low-Income Housing Tax Credits, to improve the efficiency of their project financing.
 
Ice Miller’s business, tax and community financing teams have deep experience in federal tax incentive programs, like the Opportunity Zone Program, and in combining federal programs with state and local programs to maximize their benefits for high-impact projects for low-income communities.
 
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