The Significance Of Investing In Opportunity Zones

The Tax Cuts and Jobs Act created quite a stir when it was first drafted and eventually passed, with all sides of the political spectrum arguing for and against the proposed changes. It is unfortunate, but commonplace now, that within Congress there are tremendous divides on just about every major issue. On taxes alone, the estate tax, pass-through business taxation, certain personal tax matters, acceptable deductions and the various waivers, each and collectively, are lauded or criticized. However, there was one policy within the Tax Cuts and Jobs Act that was attractive and beneficial to members of Congress on both sides of the aisle: Qualified Opportunity Zones.

Qualified Opportunity Zones was originally introduced in the Investing in Opportunity Act (IIOA) during the 114th Congress; it was reintroduced in 2017 in the 115th Congress by Sen. Tim Scott, R-S.C., and Sen. Cory Booker, D-N.J. and Representatives Pat Tiberi (R-Ohio) and Ron Kind (D-Wis.), where it received nearly 100 congressional cosponsors. The goal of these opportunity zones, or O-Zones according to the IRS, is to strengthen distressed neighborhoods across the United States through economic development and incentivize job creation in those communities.

Why do we need Opportunity Zones?

In the years since the housing recovery began, investment and development has been concentrated in “superstar” cities, including New York, Los Angeles, San Francisco, Miami and Phoenix. Meanwhile, more than 50 million Americans live in distressed neighborhoods that have yet to see much of any economic resurgence or development.

With so many people living in less-fortunate regions, governors in every state were tasked with identifying areas clearly demonstrating both the need and capacity to absorb new developments, where private capital could trigger significant economic change if properly invested. Hence, the Opportunity Zones were created.

Last month, the IRS released a set of regulations on Opportunity Zones, shedding light on the program, such as what qualifies as an opportunity fund, and other previously ambiguous requirements. With tax incentives offered within the Opportunity Zones program, we will start to see more willingness from the private sector to develop and bring much-needed infrastructure to underserved communities. That infrastructure will help bring new businesses and opportunities to those neighborhoods and will be a catalyst for growth, both in jobs and population.