What are opportunity zones?
Opportunity zones were created by congress as part of the Tax Cuts and Jobs Act of 2017 to spur economic growth in economically distressed communities. In April of 2018, Gov. Asa Hutchinson proposed 85 tracts around the state be designated as official Opportunity Zones in Arkansas. By December of that year, the US Department of the Treasury confirmed this proposal and all 85 tracts were designated as Qualified Opportunity Zones (QOZs). There are more than 8,700 designated zones nationwide that provide tax incentives for private investment in low-income communities. Opportunity Zone properties around the state vary greatly. They include urban/downtown, industrial, suburban, and rural areas—but each QOZ shares the same need of a spur in economic growth and job creation. Click here to view an interactive map of opportunity zones in Arkansas.
How do they work?
Investors who wish to take advantage of this program have 180 days to reinvest any prior eligible capital gains into a Qualified Opportunity Fund (QOF) and by doing so, they receive several tax incentives on those gains. The QOF is created to invest in an opportunity zone property with at least 90 percent of its assets dedicated to the QOZ. By reinvesting all or a portion of their gains into a QOF, the investor’s capital gains tax may be deferred until the sale of the QOZ investment or until December 31, 2026, whichever comes first. If the QOZ is held for five years, the investor will benefit from a 10% exclusion of the deferred gain; holding it for seven years will increase the exclusion to 15%. Investors who hold the QOZ for at least 10 years will eliminate paying a capital gains tax on appreciation of the QOZ property.
Investors benefit from the preferential tax treatment while communities benefit from property improvements, job creation, and new businesses. Small businesses operating in the opportunity zone may also benefit with an equity investment from a QOF. There are requirements that must be met to qualify as an Opportunity Zone Business (QOZB), which are outlined in detail in the New Proposed Regulations.
The Opportunity Zones program is a unique and effective economic development tool and an important part of making our communities and neighborhoods stronger, safer, and more economically healthy. As Opportunity Zones grow and prosper, the communities around them reap the benefits, which in turn, benefits everyone.
The information provided here in is not to be construed or relied upon as legal or tax advice.