Opportunity Zones Provide Incentives to Invest in Lower-Income Areas
What is an Opportunity Zone?
The Tax Cuts and Jobs Act of 2017 was signed into law on Dec. 22, 2017. The Opportunity Zone program was included in that act, which is designed to provide tax incentives to investors who fund businesses in underserved communities.
Investors are able to defer paying taxes on capital gains that are invested in Qualified Opportunity Funds that in turn are invested in distressed communities designated as Opportunity Zones by the governor of each state. Up to 25 percent of the low-income census tracts in each state can be designated as Opportunity Zones.
How Many Zones Can Be Created?
The governor of each state has until April 20 to designate up to 25 percent of the total number of eligible census tracts as Opportunity Zones. In Washington, this comes out to a total of 139 tracts. Communities have until March 26 at 5 p.m. PST to nominate tracts using the application materials below.
Nominated Tracts Must Meet Specific Criteria
Low-income community census tracts are the basis for determining eligibility for Opportunity Zones. A low-income community census tract must have an individual poverty rate of at least 20 percent or median family income up to 80 percent of the area median in order to qualify.
How Will Washington Decide Which Areas to Designate as Opportunity Zones?
Governor Inslee directed Commerce to develop a procedure for nominating tracts. Commerce consulted with a diverse group of stakeholders, and as a result, set the following goals:
- Transparent process
- Create a process that helps strengthen communities
- Create ability for tribes to directly access some portion of the available census tracts
- Create ability for each county, in conjunction with the applicable associate development organization (ADO) to access some portion of the available census tracts
- Create a competitive portion of tracts that will be awarded to the areas that most likely result in new investment and job creation.
To accomplish these goals, Commerce is requesting that cities, towns, counties, tribes, associate development organizations, port districts and housing authorities nominate tracts through one or more of the following three options no later than March 26 at 5 p.m. PST:
Opportunity Zone Pools
|County/ADO Set-Aside: up to 69 tracts total||Each county, through the applicable ADO, may nominate a certain number of eligible census tracts within the county for designation. The number of tracts per county is allocated based on the total number of eligible tracts in the county, and is shown in Appendix A. Counties will receive a minimum of one and a maximum of five tracts through this formula. If fewer than 69 tracts are nominated, any remaining tracts will be added to competitive process.|
|Federally recognized Tribe Set-Aside: Up to 29 tracts total||Each of the state’s federally recognized tribes may nominate one eligible census tract for designation. The tract may, but need not, include lands owned or controlled by the nominating tribe. If fewer than 29 tracts are nominated, any remaining tracts will be added to the competitive process.|
|Competitive Process: 31 or more tracts (total will depend on the number of set-aside tracts that are returned to the competitive pool)||Eligible entities (cities, towns, counties, tribes, ADOs, housing authorities, and port districts) may submit applications to nominate tracts for designation based on criteria specified below. Each application may nominate as many as three tracts, and entities may submit more than one application. A review team will score each application, and the top-scoring areas will be nominated for designation.|
How Does the Opportunity Zone Program Work?
We are waiting for the U.S. Department of the Treasury and the Internal Revenue Service to develop rules for this program, including who can create and run Qualified Opportunity Funds and how they work.
The law passed by Congress in December of 2017 states:
- Qualified Opportunity Zones must be certified by the U.S. Department of the Treasury and are required to hold at least 90 percent of their assets in qualified opportunity zone businesses and/or business property.
- To qualify, capital gains must be invested in a Qualified Opportunity Fund within 180 days of the date of the sale or exchange that generated the gain.
- The tax deferral is temporary (up to nine years) and the program ends on December 31, 2026.
DISCLAIMER: The U.S. Department of the Treasury has not completed its rulemaking on the Opportunity Zone program.
All applications materials must be submitted no later than March 26 at 5 p.m. PST to: firstname.lastname@example.org