How rural areas can benefit from the new federal tax program that incentivizes investors to develop in low-income communities.

A product of the Tax Cuts and Jobs Act of December 2017, opportunity zones were created to spur development in disadvantaged communities nationwide by offering investors incentives in the form of capital gains tax breaks.

With the right combination of factors in place, opportunity zones can truly live up to their name by igniting sustainable economic activity that lifts prospects for communities, and offers transformative potential to operating companies and startups.

Opportunity zones are designated low-income communities based on median family incomes or poverty rates. Oregon’s 834 low-income census tracts are largely urban, with 21% in rural areas. The state has 86 designated opportunity zones. While Multnomah County, including downtown Portland, claims 17 of the zones, 31% are in rural areas.

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The Tax Cut and Jobs Act created the federal Qualified Opportunity Zone (QOZ) program that became effective in 2018 and will be operative for up to the next three decades.  Effective January 1, 2018, through December 31, 2026, individuals, C and S Corporations, REIT’s, partnerships and other pass-through entities can sell their appreciated capital assets and elect to reinvest the resulting capital gain income into a Qualified Opportunity Funds (QOF), in order to defer the tax on those gains for up to eight years and permanently exempt up to 15% of the original federal gain and 100% of the post-reinvestment gain.  California has indicated they will not be conforming to the federal rules, while Utah likely will, and investors must carefully evaluate the state impact of any reinvestment.

The QOZ program offers flexible tax savings and diversification tool for taxpayers generating larger gains. To participate in the QOZ program, the taxpayer must roll all or a portion of their short-term or long-term capital gain into a QOF within 180 days of the recognition date of the gain. The QOF must then timely invest the deferred gains into undeveloped or developed real estate, a new or existing QOZ-based business, or other qualified QOZ property.

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