By: Patrick J. Paul
President Trump’s Tax Cuts and Jobs Act passed by Congress in December included a new community development program designed to promote investment in low income urban and rural communities. These “Opportunity Zones” provide that every Governor may nominate up to 25% of qualifying low-income Census tracts for consideration in the program which provides substantial reductions on capital gains taxes with the greatest benefits to those holding their investments for a period of at least 10 years.
States were required by March 21st to submit nominations or request a 30 day extension to subsequently submit. The Treasury Department in turn has 30 days from the date of submission to designate the nominated zones. On April 9, 2018, the Treasury Department and the IRS formally dedicated opportunity zones in 18 states including Arizona. The Department will make future designations as submissions by the states that have requested an extension are received and certified.
Qualified Opportunity Zones retain their designation for 10 years. Investors can defer tax on any prior gains until no later than December 31, 2026, provided the gain is reinvested in a Qualified Opportunity Fund which is an investment vehicle organized to make investments in Qualified Opportunity Zones.
The Treasury Department and the IRS will soon issue additional information on Qualified Opportunity Funds designed to address the certification of Opportunity Funds, which are required to have at least 90 percent of fund assets invested in Opportunity Zones.
The Arizona Commerce Authority (ACA) working with local governments helped determine which tracts had the greatest potential for beneficial development. In total, 168 tracts were nominated and approved across every Arizona County, all believed to be suited for a variety of development including manufacturing, warehousing, distribution and technology.
In the Phoenix area notable opportunity zones include most of downtown Phoenix, and in general the light rail route and anticipated extension, as well as areas around Grand Canyon University, Christown and Paradise Valley malls and Phoenix Sky Harbor, Deer Valley, Mesa Gateway and Falcon Field airports.
The Arizona Census Tracts that were nominated as Opportunity Zones may be found here.
The favorable tax treatment is expected to spur development though landowners and developers alike are awaiting further guidance from the Treasury Department.