Treasury and IRS Designate Opportunity Zones for 18 States

Treasury and IRS Designate Opportunity Zones for 18 States

The U.S. Department of Treasury and the IRS recently announced the first round of Opportunity Zone designations in 15 states and three territories. The Tax Cut and Jobs Act of 2017 (TCJA) established a new economic development incentive, known as an “Opportunity Zone.” An Opportunity Zone is designed to provide incentives for long-term capital investments in designated low-income communities by providing investors with a deferral from recognizing federal capital gains tax and, in some circumstances, entirely exempting the gain derived from an investment in designated Opportunity Zones.

The program uses low-income census tracts as determined under Section 45D(e) of the Internal Revenue Code of 1986, as amended, as the basis for determining census tracts eligible for an Opportunity Zone designation. This census tract eligibility criteria mirrors the low-income tract criteria for the federal New Market Tax Credit program with an important exception. Unlike the New Market Tax Credit Program, where all low-income census tracts were universally eligible, each state governor is allowed to nominate up to 25 percent of its eligible census tracts. For example, in Michigan, there are 1,152 eligible census tracts. Therefore, the maximum of 25 percent, or 288, of these census tracts were allowed to be designated as a Qualified Opportunity Zone. The Qualified Opportunity Zone designation is for 10 years.

The deadline for each state to nominate up to 25 percent of its low-income, high-poverty census tracts to the Treasury for designation as a Qualified Opportunity Zone was March 21, 2018, unless a state requested a 30-day extension.

On April 9, 2018, the Treasury and the IRS designated Qualified Opportunity Zones in each state that submitted its nominations by the March 21 deadline. Those jurisdictions include: American Samoa; Arizona; California; Colorado; Georgia; Idaho; Kentucky; Michigan; Mississippi; Nebraska; New Jersey; Oklahoma; Puerto Rico; South Carolina; South Dakota; Vermont; Virgin Islands; and Wisconsin.

For a map and listing of all designated Qualified Opportunity Zones, see the Opportunity Zones Resources page established by the U.S. Department of Treasury Community Development Financial Institutions Fund (which will be updated as designations of Opportunity Zones are made in the remaining states) by clicking here.