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Opportunity Zones: New tax law touts serious benefits for investing locally

Investing in neighborhood revitalization is important for many regions, and it certainly is a priority in Greater Cincinnati, where neighborhoods like Avondale, Covington, the West End, and Ludlow have been identified as eligible for a new source of capital for economic development.

The Tax Cut and Jobs Act of 2017 created a new federal program that channels private capital to struggling communities by enabling investors to contribute to private-sector investment vehicles, or Opportunity Funds, that will invest in Opportunity Zones designated by each state. Up to 25 percent of a state’s low-income census tracts can be designated for the program.

Governors of Ohio, Kentucky, and Indiana recommended their state census tracts to the U.S. Treasury Department for program consideration — 320, 144, and 156 tracts, respectively. Kentucky and Ohio’s census tracts were approved in April, and the Treasury Department is expected to make final designations by the end of 2018.

Approved tracts, aligning with qualifying communities, could become prime locations for private sector investment, signaling economic growth potential for communities, developers, and enterprising investors alike. These communities are now prime locations for entrepreneurs and capital to meet.

What it might mean for Greater Cincinnati

Organizers looked at missed opportunities and new areas of growth to recommend census tracts to respective state governors in Ohio, Kentucky, and Indiana, and many are confident that the program’s attractive terms can draw the capital necessary to prompt (and in some cases reignite) projects throughout the region. Local examples of such developments include commercial and residential builds on the riverfront, manufacturing/distribution sites near CVG airport, and rural sites in Brown and Clermont Counties. All of these areas, and many more, could end up being home to transformative projects.

What it might mean for investors

One entity helping make sense of the new law is Economic Innovation Group (EIG), a bipartisan public policy research organization formed with the goal of “empowering entrepreneurs and investors to forge a more dynamic U.S. economy.”

EIG points to the program’s ability to create Opportunity Funds as encouragement for those holding large amounts of unrealized capital gains to become a source of capital for economic development. The group estimates individuals and corporations currently hold more than $2 trillion in unrealized capital gains. In exchange for investors putting their capital to work in low-income communities, they could be eligible for a temporary tax deferral, step-up in basis or a permanent exclusion from capital gains from the gain or sale or exchange of investment in a qualified opportunity zone fund when making a long-term commitment.

You can find the details on specific opportunity zones in Ohio, Kentucky, and Indiana at the below links.