Opportunity Zones

U.S. TREASURY CERTIFIES COLORADO OPPORTUNITY ZONES

Colorado’s nominated census tracts were approved by the U.S. Treasury. There are 126 census tracts certified as Opportunity Zones – eligible for investment by Opportunity Funds.

States have identified their Opportunity Zones. Now what?

The Opportunity Zones Program was enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act) to address uneven economic recovery and persistent lack of growth that have left many communities across the country behind. In the broadest sense, the newly enacted federal Opportunity Zone (OZ) program provides a tax incentive for investors to reinvest capital gains into low-income urban and rural communities.  In Colorado, Opportunity Zones may help address a number of challenges:

  • Promoting economic vitality in parts of the state that have not shared in the general prosperity over the past few years
  • Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages
  • Funding new infrastructure to support population and economic growth
  • Investing in startup businesses who have potential for rapid increases in scale and the ability to “export” outside the state of Colorado
  • Upgrading the capability of existing underutilized assets through capital improvement investments

This economic and community development tax incentive program provides a new impetus for private investors to support distressed communities through private equity investments in businesses and real estate ventures. The incentive is deferral, reduction and potential elimination of certain federal capital gains taxes. U.S. investors currently hold trillions of dollars in unrealized capital gains  in stocks and mutual funds alone— this is a significant untapped resource for economic development.

Opportunity Funds which invest in Opportunity Zones provide investors the chance to put that money to work rebuilding the nation’s distressed communities. The fund model will enable a broad array of private equity fund managers and investors to pool their resources, increasing the scale of investments going to under-served areas.


 

 

OPPORTUNITY FUNDS

 The U.S. Treasury is finalizing their regulations which will implement this new law that will guide the Opportunity Funds. Investment groups are organizing and contemplating opportunities.

Opportunity Funds are a new class of investment vehicle that must be organized as a corporation or a partnership. The funds will specialize in attracting investors with similar risk/reward profiles to aggregate and deploy their capital in rural and low-income urban communities. Opportunity Funds will be comprised of private capital and guided by market principals. The funds must invest 90% of their assets in opportunity zone assets. Funds may invest in opportunity zones via stock, partnership interests, or business property.

Fund assets must create new business activity. If invested in an existing business, the fund must double the investment basis over 30 months. The funds can create new businesses. or new real estate or infrastructure. Funds may not be invested in certain types of business like golf courses, country clubs, gambling establishments, and a few other specifically excluded types of business.

Program details are in development. We encourage you to search the web and to review the links below on our web-page.

WHY WILL INVESTORS CHOOSE AN OPPORTUNITY FUND

Some investors have a social investment drive – they want their capital to improve communities they know and love. The Opportunity Fund creates an additional incentive to invest in communities by deferring and possibly eliminating the capital gain tax on long-term investments. Volatility in the stock-market has many investors stilling on unrealized capital gains; they can transfer these into Opportunity Funds putting the full value of the capital gain to work.

The law allows for the temporary deferral of inclusion of the capital gain in gross income for those capital gains that are reinvested into Opportunity Funds. The law sun-sets in 2026; therefore, investments will need to occur in the near-term for investors to realize the full capital gains tax benefits.

Capital Gains Incentives:

  • Capital gains rolled into an Opportunity Fund
    1. No up-front tax bill on the rolled-over capital gain
    2. Reduction of tax on the rolled-over capital gain investment for long-term holding.
      • A 5 year holding increases the rolled-over capital gains basis by 10%
      • A 7 year holding increases the rolled-over capital gain investment  basis 5% for a total of 15%
    3. Investors can defer their original tax bill until December 31, 2026 at the latest, or until they sell their Opportunity Fund investments, if earlier.
  • Opportunity fund investments held in the fund for at least 10 years are not taxed for capital gains.

OPPORTUNITY ZONES

Colorado’s Office of Economic Development and International Trade (OEDIT) conducted an inclusive and rigorous process which included the production of metrics for evaluation, public input, and collaboration with regional economic development partners who brought extensive human intelligence to the table to select census tracts with need and opportunity characteristics that present a good case for private capital investment. Colorado’s Opportunity Zones present a portfolio of investment opportunities from urban to rural, and business starts to infrastructure. A majority of the census tracts are outside of the Front Range and touch much of the state with the goal of raising up our rural economies. The census tracts nominated have been approved. Colorado’s OZs are now set for the duration of the program (through 2026).

Every state and territory may designate up to 25% of eligible census tracts as OZs; there are about 74,000 census tracts across the U.S.  Private equity in Opportunity Funds will seek the best investment opportunities aligned with their missions and return requirements, potentially across the whole U.S. It’s important to remember that OZs in Colorado will frequently be competing with OZs throughout the United States for capital investments.

Opportunity Zone census tracts available here.

Opportunity Zone Map

For map resources click here.
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us