Opportunity Zones create a new financial incentive for investment in low-income communities and adjacent areas.
A provision in the 2017 Tax Cuts and Jobs Act is designed to incentivize investments in low-income communities or areas directly adjacent to one or more low-income communities, known as Opportunity Zones. These communities include census tracts where the poverty rate is at least 20 percent or neighboring areas where the income is less than 125 percent of any bordering low-income tract.
In April 2018, the U.S. Department of Treasury and the IRS announced that the federal government approved the designation of Opportunity Zones in 18 states, including Michigan. The government approved all 288 census tracts recommended by Governor Rick Snyder; 288 is the maximum number of tracts that qualify in Michigan. Opportunity Zones retain their designation for 10 years.
Investors get tax benefits from equity investing in the Opportunity Zones via a Qualified Opportunity Fund over a 10-year period. The benefits include temporary deferrals, basis reduction and permanent avoidance, which can be combined with tax credits and other existing incentives.
An Opportunity Fund can be used as a primary investment in a variety of activities, such as creating a new business, new commercial or residential real estate and infrastructure. It can also be used to invest in existing businesses, under some circumstances.
- Lead or participate in conversations about how the field can influence investment activities and protect vulnerable populations.
- Educate the community – including potential investors – about the Opportunity Zone legislation and how they may benefit from it while also helping communities in need.
- Gather local agencies in your community or mission area to brainstorm Opportunity Zone-qualified projects that could be undertaken.
- Assist in designing investment-ready projects (which may require technical assistance to the potential investee), help identify potential investors and support getting them shovel-ready.
- Fund local ecosystem building work around the Opportunity Zone program.
- Lead discussions within your organization about its willingness to invest in an Opportunity Zone fund or directly in one or more particular projects. Brainstorm ways by which your organization may support Opporunity Zone funds and encourage investment in them, such as through capacity building grants for the projects or guarantees of the investments.
- Catalyze a fund manager to sponsor an Opportunity Zone fund that would make investments that would benefit communities in need.
Read CMF's Weekly Download article "Opportunity Zones and Funds: More Details Emerging" (November 5, 2018)
Read CMF's Weekly Download article "Opportunity Zones Unveiled in MI to Spur Economic Development" (May 21, 2018)
Read LOCUS Impact Investing blog post "Community Foundations, Meet Opportunity Zones"
Review proposed IRS regulations on Opportunity Zone tax incentives
Review memo from Deloitte about qualified Opportunity Zone incentives
Review memo from Bodman PLC outlining the five best provisions in the Opportunity Zone regulations
Review State of Michigan FAQ & Updates / Opportunity Zones Maps
Review Mission Investors Exchange (MIE) Opportunity Zones guides and toolkits
Watch "Opportunity Zones Webinar Recording: A Dispatch From the Field," presented by Mission Investors Exchange