The term “Opportunity Zone” is a new term in accounting and finance. Yet, it should not be strange to accounting and finance professionals. This term was created when the Tax Cut and Jobs Act was enacted on December 27, 2017 under Trump’s Administration. According to the IRS, this Tax Cut and Job Act was created for economically-distressed communities within the US. It was a recent policy and it covered part of 18 states in the US and only designated at April 9, 2018. By June 2018, it covered every states and territories in the US.
Under this Act, new investments invested in low income communities under certain conditions may be eligible for preferential tax treatment. In another word, if investors invest in these locations, their capital gain from these investments can receive a tax cut. It is a way to encourage businesses and investors to invest in economically distressed parts of the country.
By June 14, 2018, there are 8,762 opportunity zones across the US. Most of them are low income communities and only 198 few are eligible non low income community contiguous. Low income communities are where:
- the tract has higher than 20% of poverty rate
- having less than 2000 people and within an empowerment zone and contiguous with other low income community
- the median family income is below the threshold of the metropolitan area wherever the tract is located at.
Investments in such tracts may guarantee tax cut, but the returns of the investments vary. They will still depend on the market, demand, operation… and many economic factors, just like any other investments.