UPDATE – October 2018
The Department of Treasury on Friday proposed new regulations and some clarifications regarding the Opportunity Zone program that can benefit investors, business owners, and developers who place money in a qualified opportunity fund before deploying the investment in a designated opportunity zone in return for tax benefits.
Under the law, businesses and individuals are eligible for tax benefits on capital gains reinvested in the 8,700 low-income communities designated as Opportunity Zones in the City of Oxnard as well as across all 50 states, the District of Columbia, and the U.S. territories.
The Department of the Treasury released a 74-page document Friday outlining proposed regulations that provide guidance in investing in Opportunity Funds. Public comments are being accepted online and by mail ahead of a public hearing scheduled for Jan. 10.
Comments can be submitted electronically via the Federal Rulemaking Portal at www.regulations.gov (IRS REG-115420-18). The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.
More information forthcoming.
OXNARD DESIGNATED AS AN OPPORTUNITY ZONE
The federal tax bill passed at the end of December 2017 allows the Governor to designate certain census tracts as Opportunity Zones. Investments made by individuals through special funds in these zones would be allowed to defer or eliminate federal taxes on capital gains. The Governor can designate up to 25 percent of census tracts that either has poverty rates of at least 20 percent or median family incomes of no more than 80 percent of statewide or metropolitan area family income. There are 3,516 census tracts in 54 California counties that would qualify under one or both of the mandatory criteria, allowing the Governor to designate up to 879 tracts. As census tracts are designed to capture geographic areas of around 4,000 people, more than 3 million Californians would potentially be located in one of these areas.
The U.S. Department of the Treasury has certified California’s nominated eligible census tracts and has designated all 879 nominated tracts as Qualified Opportunity Zones under Internal Revenue Code (IRC) Section 1400Z-1(b)(1)(B).
HOW DO OPPORTUNITY ZONES WORK?
The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund:
1) Capital gains tax deferral, 2) step up in basis, and 3) capital gains tax elimination are the triple threat tax advantages investors may see with investment in Opportunity Zones:
Capital Gains Tax Deferral
A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
Step up in Basis
A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
Capital Gains Tax Elimination
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
WHAT DOES THIS MEAN FOR OXNARD?
The program is intended to attract long-term investments to disadvantaged areas, as measured by poverty and median income.
U.S. investors currently hold trillions of dollars in unrealized capital gains in stocks and mutual funds alone— a significant untapped resource for economic development. Opportunity Funds provide investors the chance to put that money to work rebuilding the nation’s left-behind communities. The fund model will enable a broad array of investors to pool their resources in Opportunity Zones, increasing the scale of investments going to underserved areas, including areas within Oxnard.
Oxnard designated census tracts:
• Rose Park, located within the boundaries of 101 Freeway (North); Oxnard City Limit (East); Fifth St. (South); Rose Ave. (West); Camino Del Sol (North); Graves Ave. (West); E. Gonzales Rd. (South); N. Rose Ave. (East).
• Colonia, located within the boundaries of Juanita Ave. (East); E. Third St. (South); S. Oxnard Blvd. (West); E. Colonia Rd. (North).
• 5 Points Northeast Census Tract, located within the boundaries of Rose Ave. (East); Oxnard Blvd. (West and South); Colonia Rd. (North); Juanita Ave. (East); W. Third St. (South).
Opportunity Funds are a new class of investment vehicles (organized as a corporation or a partnership) that specialize in
aggregating private investment and deploying that capital in Opportunity Zones to support Opportunity Zone Property.
For individuals to become a Qualified Opportunity Fund, an eligible taxpayer self-certifies. (Thus, no approval or action by the IRS is required.) To self-certify, a taxpayer merely completes a form (which will be released in the summer of 2018) and attaches that form to the taxpayer’s federal income tax return for the taxable year. (The return must be filed timely, taking extensions into account.)
Information concerning organizations that qualify as a Qualified Opportunity Fund is still forthcoming from the Department of the Treasury and the Internal Revenue Service (IRS) in Washington D.C. Over the next few months, the Treasury Department and the IRS will be providing further details, including additional legal guidance, on this new incentive. More information will be available at Treasury.gov and IRS.gov as well as Oxnard.org.
For a detailed look at Opportunity Zones in Oxnard, please click here for an interactive map:
Want to know more? For a link to frequently asked questions on Opportunity Zones, please click here