Overview
The Opportunity Zone Program, created by the Tax Cut and Jobs Act of 2017, provides federal tax incentives for private entities to reinvest capital gains into privately-created Opportunity Funds. These funds are then used to invest in low-income communities throughout the country. The fundamental goal of the Opportunity Zone Program is to stimulate private investment in disadvantaged areas.
Cape Cod has six designated Opportunity Zones: Provincetown, Dennis, Yarmouth, Barnstable, Falmouth and Bourne/Sandwich. Mass.gov keeps a map of the opportunity zones in the region: https://www.mass.gov/service-details/opportunity-zone-map
The state held a competitive process for communities to apply for OZ designation; 110 communities had more than 500 eligible tracts. Nominations were evaluated against 3 major criteria:
- Opportunities: sites and businesses that are opportunities for private investment and development
- Planning: community describes the planning work done in the tract(s) identified in the application
- Demographics: poverty rate, median family income, and unemployment rate in the tract(s) in the application and in the broader community
In April 2018, Gov. Baker nominated 138 census tracts for designation, which were certified by the US Treasury in May 2018. Tax incentives can only be claimed for investments within these specific census tracts.
There are three incentives for investors, which accumulate over the life of the investment. All three are federal incentives, and are non-competitive, so all qualified investors may claim them. The draft regulations are available for review.
- Temporary Deferral: Investors may defer capital gains on income reinvested into Opportunity Funds. The deferred gain must be recognized when the investor exits the fund, or on Dec. 31, 2026, whichever comes earlier.
- Step-Up in Basis: If the investor remains within an Opportunity Fund for at least 5 years, their tax liabilities related to the original capital gains are reduced by 10 percent. If the investment is held in the Opportunity Fund for 7 years, this increases by an additional 5 percent, meaning that investors can reduce capital gains liability by 15 percent total.
- Permanent Exclusion of Fund Gains: If an investor keeps their investment in an Opportunity Fund for 10 years, any gains from the Opportunity Fund are exempt from taxation.
Additional information is available on the Mass.Gov website.
