A.CRE

Opportunity Zones

Special economic development zones created as part of the Tax Cuts and Jobs Act of 2017. Individuals and companies that invest in qualified opportunity zones enjoy special tax treatment to encourage investment in these distressed areas within the United States. The purpose of the creation of these zones, and the corresponding tax benefits of doing so, is meant to spur job growth and economic activity in these areas.

Individuals and companies that invest in opportunity zones can choose to temporarily defer tax on capital gains if those gains are invested in a qualified opportunity zone. For more information on the benefits and qualification for this program, view the IRS’ Opportunity Zones Facts Sheet.

Opportunity Zone Map

Below find an interactive map of all of the Opportunity Zones in the United States. The program and zones are subject to change. Be sure to review the IRS’ Fact Sheet (above) for more details.

Putting ‘Opportunity Zones’ in Context

Gateway Redevelopment Partners, a real estate investment firm, identified a distressed property in Cleveland, Ohio, located within a designated Opportunity Zone. The firm acquired the site, a 2.5-acre parcel with an aging 60-unit apartment complex, for $1.2 million. The complex, previously known as Riverview Apartments, suffered from high vacancy rates and outdated infrastructure.

The Opportunity

Under the Tax Cuts and Jobs Act of 2017, Gateway Redevelopment Partners saw an opportunity to revitalize the property while benefiting from the tax advantages associated with Opportunity Zones. By investing $3.8 million in renovations and upgrades, the firm planned to convert the property into Opportunity Village Apartments, a 75-unit affordable housing development with modern amenities such as energy-efficient appliances, upgraded common areas, and improved landscaping.

Financial and Tax Benefits

  • Tax Deferral: The firm deferred paying taxes on the original $1 million capital gain until the end of 2026 or when the Opportunity Village Apartments were sold.
  • Reduction in Capital Gains Tax: By holding the investment for at least 5 years, Gateway Redevelopment Partners reduced the taxable amount of the deferred gain by 10%.
  • Exclusion of Future Gains: After holding the property for over 10 years, any appreciation in the value of Opportunity Village Apartments would be exempt from capital gains tax.

Community Impact

The redevelopment project not only generated attractive returns for the firm but also created jobs during construction and provided much-needed affordable housing for the community. The upgraded property attracted new tenants, reducing the vacancy rate to below 5% and contributing to the neighborhood’s revitalization.

Key Takeaways

This hypothetical scenario illustrates how Opportunity Zones can serve as a vehicle for both economic development and financial benefits. By aligning tax-advantaged investing with redevelopment, Gateway Redevelopment Partners successfully turned a distressed property into a thriving community asset while optimizing their tax strategy.

Frequently Asked Questions about Opportunity Zones

Opportunity Zones are special economic development zones created under the Tax Cuts and Jobs Act of 2017. They are designed to spur economic growth and job creation in distressed communities by offering tax incentives to investors.

Investors may benefit in three ways:

Temporary deferral of taxes on capital gains invested in an Opportunity Zone.

Reduction in the deferred gain if the investment is held at least 5 years.

Permanent exclusion of gains on Opportunity Zone investments held for 10 or more years.

Gateway Redevelopment Partners invested $3.8 million to revitalize a 60-unit distressed complex into a 75-unit affordable housing project in Cleveland’s Opportunity Zone. They deferred $1 million in capital gains taxes, reduced their taxable amount by 10%, and positioned for full exclusion of future appreciation.

Typical projects include:

Ground-up multifamily developments

Redevelopment of existing properties

Affordable housing

Commercial centers
All must be substantially improved or newly developed to qualify for the program.

Yes. Individuals and companies can invest capital gains into a Qualified Opportunity Fund (QOF) to take advantage of the tax benefits provided by Opportunity Zones.

The IRS Opportunity Zones Facts Sheet and the interactive Opportunity Zone Map offer official and updated information on zone locations and program guidelines.

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