FINDING OPPORTUNITY IN OPPORTUNITY ZONES
US Public Policy
Finding Opportunity in Opportunity Zones
Investors with unrealized capital gains can receive significant tax benefits by reinvesting in newly designated Opportunity Zones. We summarize the opportunity and explore direct and secondary beneficiaries.
The Tax Cuts and Jobs Act introduced a new federal tax incentive designed to promote capital formation and investment in designated economically distressed communities called Opportunity Zones. Over 8,700 census tracts have been designated across the country, including in Puerto Rico and other US territories. The incentive has the possibility to become the nation’s largest economic develop-ment program, with estimates of $100 billion in initial investment. 1 We see the greatest opportunity for benefits in urban zones and tracts with high population density, such as the New York, Los Angeles, Chicago, and Houston metropolitan areas.
Redeploying unrealized capital gains into Opportunity Funds may lead to significant tax benefits for investors. The incentive provides deferral and a reduction of taxes upon realizing capital gains and excludes taxes on new gains generated by Opportunity Funds, if held for 10 years. For 10-year investments with annual returns between 5% and 15%, investors could realize after-tax profit increases between 27% to 52% versus traditional investments.