Opportunity Zones: Fundamentals
Updates as of September 2019
Visit MIE's OZ Library for evolving resources on the Opportunity Zone program.
Putting Capital Gains to Work
- Investors can temporarily delay including realized capital gains (profit from investment that has been sold) as taxable income when they’re reinvested into an O Fund.
- The longer the original capital gains remain in an O Fund, the less of the original amount is included as taxable income when it is taken out of an O Fund: after 5 years, 10% of capital gains can be excluded from taxes, while after 7 years, 15% of that original gain will be excluded.
- All capital gains resulting from an O Fund are excluded from taxable income if it remains within that fund for at least 10 years.
In this way, O Funds may activate passive, patient capital by connecting investors to projects in low income communities. The pooled fund model may also increase the scale of investments while lessening the risk to any individual investor.
Concerns and Challenges
These issues may be exacerbated by the speed at which the program was rolled out. In the spring of 2019, invitations for public comments to revise the legislation sparked a variety of responses from the impact investing community, focused in large part on how to avoid potential misuses of the program. To address some of these concerns, Senators Tim Scott, Cory Booker, Todd Young, and Maggie Hassan proposed changes in May 2019 that would require investors to share certain types of impact data with the Department of Treasury. However, the proposal has not yet passed into law, and there is no stated timeline clarifying when changes may occur.
Focusing on Impact
- Supporting impact focused learning and development: The Rockefeller Foundation and Smart Growth America have launched an Opportunity Zones Academy to help cities drive sustainable growth in Opportunity Zones by attracting socially responsible investment.
- Providing investment: The Kresge Foundation is providing guarantees focused on supporting high impact projects.
- Building community: Many foundations are using this program as an opportunity to build local ecosystems and networks focused on impact.
- Monitoring the focus of legislation: In an open letter to the IRS, the Presidents’ Council of the US Impact Investing Alliance said ignoring additional
reporting and regulatory suggestions could end up leading to the displacement of residents from the 8,700 areas designated as opportunity zones.
Visit this post for ideas on how you can get involved. Visit Enterprise Community Partners, Summit Consulting, the Economic Innovation Group (EIG), the CDFI Fund, and the U.S. Treasury for additional updates. If you have any thoughts or ideas, please email Anjali Deshmukh.