“Opportunity Zones” were created in 2016 under the Tax Cuts and Jobs Act to encourage investment in “distressed areas” by way of tax advantages on otherwise taxable capital gains. States were able to nominate up to 25% of their low-income census tracts to be considered Opportunity Zones. This left North Carolina with 252, with at least one in every county. It’s important to note that, as a local government, an investor interested in Opportunity Zones does not require any special approvals from you outside of your normal construction or land-use types. This, however, does not mean there’s nothing for you to do to encourage investments in your community’s Zone(s). “Site prep”, co-locating public functions, and additional incentives for businesses to locate within your Zone are concrete ways to be better positioned to take in Opportunity Zone investment.
With Trump’s “Big Beautiful Bill” making its way through the House and Senate, we foresee some changes coming to the program. The House version of the bill and the Senate version, unsurprisingly, differ on what changes they would make to the program.
In the reconciliation bill recently passed by the House, there are a few key changes we think you should be aware of. The first major change would be to scrap the current set of Opportunity Zones at the end of 2026, to create a new set of Zones in the beginning of 2027 that would last until 2033. Some current Zones would no longer be eligible in the new set, and thus any investments in areas no longer qualifying would not receive the tax break. This would likely lead to a slowdown in investment, both from the uncertainty that a Zone may become ineligible, as well as from a hold-off in investments to see if the project may become eligible under the new set of Zones.
One other major difference between the current version and the House bill would be the balance of “power” between rural and other areas. In the House bill, there would be a requirement that 33% of each state’s designated Zones be in rural areas. Investments in rural areas would also be eligible for up to 30% reductions in potential capital gains taxes, as opposed to 10% everywhere else. Finally, new criteria would lower the number of eligible tracts by a significant amount.
The Senate bill largely follows the House’s lead on revisions to the original program, with one big shift. Whereas the current version of the House bill only renews the program for another 10 years, the Senate version would make the program and the resulting tax incentive permanent. In this scenario, governors would designate tracts as Opportunity Zones, which would then last for 10 years before needing to be changed or renewed.
It remains to be seen what the final version of the bill will look like. By the time you’re reading this, the current versions may not even be the ones represented in this blog. For the most up-to-date information, check the IRS site on Opportunity Zones.
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