Opportunity Finds a Home at HUD

• Published in: Journal of Affordable Housing & Community Development Law 2019-09, Vol.28 (2), p.141-146
• Main Authors: Rader, Brad E., Chretien, Spencer J.
• Format: Article
• Language: English
• Subjects: Affordable housing; Capital gains; Community; Community development; Councils; Economic development; Enterprise zones; Government agencies; HEARD FROM HUD; Housing; Housing development; Incentives; Insurance; Insurance applications; Investment; Investment tax credit; Laws, regulations and rules; Low income groups; Low income housing credit; Mortgage insurance; Neighborhoods; Nonprofit organizations; Opportunity zones; Partnerships; Pilot projects; Rehabilitation; Tax credits; Taxation; Taxes; Trump, Donald J
• ISSN: 1084-2268; 2163-0305

Included in the 2017 Tax Cuts and Jobs Act1 was an incentive for those with unrealized capital gains to invest in economically distressed areas. The law provided for the designation of certain low-income census tracts as Opportunity Zones. The chief executive of each state and territory nominated the tracts, and the U.S. Department of the Treasury ("Treasury") certified the Opportunity Zone designations. The benefits of investing in Opportunity Zones through Qualified Opportunity Funds ("QOF") are various and powerful. Investors can defer paying capital gains tax for QOF investments held through the end of 2026. For investments held five years, there is a step-up in basis of 10%. For those held seven years, this step-up rises to a total of 15%. Finally, capital gains taxes on the appreciation of QOF investments are eliminated entirely if the investment is held for ten years. The scale of the Opportunity Zones initiative is unprecedented. There are 8,764 Opportunity Zones throughout the United States, collectively home to more than thirty-one million Americans. They are urban, suburban, and rural and include people of diverse demographic backgrounds. What these 8,764 areas have in common is their economic distress. In Opportunity Zones, unemployment rates are 1.6 times higher than in the average United States census tract; the average poverty rate is more than 32%, nearly double the 17% average across the country; the homeownership rate is approximately 15% lower than the national average; and life expectancy is three years shorter. The need for investment is real, and the opportunities for investment are significant.