Opportunity Zones

A- A A+

Opportunity Zones

A community investment tool created to connect private capital with designated low-income communities in rural, urban, and Native American communities

The Opportunity Zones program has the potential to direct investments towards low-income communities nationwide and serve as a catalyst for economic revitalization, if done with the engagement and inclusion of key community stakeholders. There is a risk that without careful planning, supervision, and community engagement, investments could lead to gentrification and the displacement of residents and businesses.

At YWCA USA, we remain committed to serving the needs of communities through various programs and initiatives. Our commitment rests on the alignment of our mission and the communities we serve.  Therefore, we have decided to play a role in the policy formulation, shaping the discussion, and investments made in Opportunity Zones. We will do so in a manner that is inclusive and aims to uplift the voices and concerns of women, communities of color, and the nonprofit sector.

Through our more than 200 YWCAs in 45 states and the District of Columbia, YWCAs serve over 1,000 communities. Our 160 years of service and impact position us as an organization that has the national footprint and reach to stand as community validators and stakeholders.  Currently, 86 YWCAs associations are headquartered in Opportunity Zones across 33 states, including Alabama, Indiana, Louisiana, Montana, New York, Ohio, Pennsylvania, and Washington, and many other YWCAs associations have facilities located in an Opportunity Zone. Click here to view an interactive map highlighting the work our YWCAs are leading nationwide, including in Opportunity Zones.

Below you will find more information about the Opportunity Zones program. If you have any questions about YWCA USA’s work on Opportunity Zones, please contact Liz Lopez, Senior Director of Social Impact Investing & External Affairs, at llopez@ywca.org.

What is the Opportunity Zones program?

The Opportunity Zones program was enacted on December 2017 as part of the Tax Cuts and Jobs Act to spur long-term investments in designated low-income communities nationwide. The Treasury Department designated 8,762 census tracts as Opportunity Zones. There are 31.3 million Opportunity Zones residents within the 50 states and Washington, D.C. (56% of residents are people of color) and 1.6 million businesses.

How does the program work?

There are approximately $6 trillion of unrealized capital gains held by U.S. investors and corporations. The Opportunity Zones program aims to tap into this capital by providing investors with a tax incentive, whereby investors can roll unrealized capital gains into Opportunity Funds and temporarily defer taxes on profits. The capital gains tax relief increases by the years the investment is held by the Opportunity Fund.

What are the tax incentives for investors?

  • Temporary tax deferral: An investor can defer capital gains taxes until 12/31/2026 by putting and keeping unrealized capital gains in an Opportunity Fund.
  • Step-up in basis: The original amount of the capital gains on which an investor has to pay deferred taxes is reduced by 10% if the Opportunity Fund investment is held 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.
  • Permanent exclusion from taxable income on capital gains: Any capital gains on investments made through the Opportunity Fund accrue tax-free as long as the investor holds them for at least 10 years.

What are Opportunity Funds?

Opportunity Funds are private sector investment vehicles that are set up as either a partnership or corporation. Fund managers make investments in eligible property located in an Opportunity Zone. There are three types of eligible property:

  • Qualified opportunity zone stock: Any stock in a domestic corporation.
  • Qualified opportunity zone partnership interest: Any capital or profits interest in a domestic partnership.
  • Qualified opportunity zone business property: Tangible property used in a trade or business of the qualified opportunity fund that substantially improves the property.

What type of eligible property projects can Opportunity Funds invest in?

Opportunity Funds can finance a broad variety of projects, including commercial and industrial real estate, housing, infrastructure, and existing or start-up businesses. For real estate, Opportunity Funds can invest in the construction of new buildings and the substantial improvement of existing unused buildings. If an Opportunity Fund invests in the improvement of an existing building, it must invest more in the improvement of the building than it paid to buy the building.

Status of implementation and guidelines

The Treasury Department has released two rounds of Frequently Asked Questions (April 2018 and June 2018) and released guidelines in 2018. In May 2019, YWCA USA submitted a comment letter to the Treasury Department requesting transparency in Opportunity Funds’ investments and for Opportunity Zones data to be collected, tracked, and made available to the public.

Resources