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  • Writer's pictureEdward Lehman

Can Opportunity Zones Survive Political Overhaul?



President Joe Biden is currently weighing what he wants to do with the United States Opportunity Zone program, which is coming under increased scrutiny for its purported failure to see capital invested in areas outside of a few urban zones, and in the wake of states attempting to decouple their respective capital gains tax from the program, eliminating one of the main lures of the Opportunity Zones for would-be U.S. investors.


Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act in an effort to stimulate economic development and job creation by incentivizing long- term investments in low-income neighborhoods.


Currently, there are more than 8,760 designated Qualified Opportunity Zones located in all 50 states, the District of Columbia, and five U.S. territories. Investors can defer tax on any prior gains invested in a fund until the earlier of the date on which the investment in a fund is sold or exchanged, or until December 31, 2026.

But according to a report from economists at the University of California-Berkeley, which looked at 2019 investment figures for the 8,000 census tracts designated by state officials, only 16 percent received any investment that year.


Most of the capital was concentrated in a handful of zones, with rural areas receiving little to no investment. Investors instead focused on real estate, construction and finance, and largely in areas with fewer elderly and non-white residents and higher incomes.

That's enough for Biden to indicate he wants to see if there are ways to “improve the zones,” which among other things, he has said he wants to see more disclosure by investors to track their effects on the communities they are meant to help.

Opportunity Zones are also coming under attack from a select group of states who are now pushing forward legislation to remove the state capital gains deferrals.

Last week, the New York state budget passed by lawmakers included a provision decoupling the state and New York City tax codes from the federal Opportunity Zone tax incentive.


Once the bill is enacted, New York taxpayers will not be able to defer or exclude capital gains taxes, and any New York income tax imposed thereon will need to be paid.


As such, the decision to penalize its own taxpayers might deter them from investing needed money into low-income communities and crippling the Opportunity Zone program in New York.

Since the Opportunity Zone was enacted, California has openly denied investors the opportunity to benefit from capital gains deferments at the state level. California currently has no tax conformity to the federal Opportunity Zone program and has given no indication this will change.

It is no coincidence that New York and California do not want to conform to the federal tax scheme that makes up the Opportunity Zone program.


According to the same University of California-Berkeley, New York received the most amount of investment nationally through the Opportunity Zone program, with Los Angeles coming in at second. San Francisco places seventh nationally. For states participating in the program, that can be vital tax revenue.

AmChamUS advocates for effective implementation and utilization of Opportunity Zones across the U.S. and similar economic development programs. AmChamUS encourages investment parity across Opportunity Zones, which should not just benefit investors, but also economically distressed areas that speak to the spirit of the program.

AmChamUS encourages federal review of the Opportunity Zone program as long as it advocates for continued investment opportunities for the program, and benefits all tracts involved in the program.

AmChamUS will continue to work with municipalities and economic development stakeholders to maintain fairness and investment competitiveness in the Opportunity Zone program.

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