How do you leverage federal, state, and local incentives for land development in opportunity zones?

1 What are opportunity zones?

Opportunity zones are census tracts that have been nominated by state governors and certified by the U.S. Treasury Department as eligible for tax benefits. There are over 8,700 opportunity zones across the 50 states, the District of Columbia, and five U.S. territories. They are typically low-income areas that have high poverty rates, unemployment, or blight. You can find a map and a list of opportunity zones on the IRS website.

2 How do opportunity zones work?

Opportunity zones work by allowing investors to defer, reduce, or eliminate capital gains taxes on their investments in these areas. To qualify, investors must create or invest in an opportunity fund, which is a special vehicle that must invest at least 90% of its assets in opportunity zone property. Opportunity zone property can be either business property or real estate. For land developers, this means that they can acquire, improve, or build on land in opportunity zones and benefit from tax advantages.

3 What are the federal incentives?

The federal incentives for investing in opportunity zones are based on the amount and duration of the investment. Investors can defer paying taxes on their capital gains until December 31, 2026, or until they sell their opportunity fund investment, whichever comes first. In addition, they can reduce their taxable capital gains by 10% if they hold their investment for at least five years, or by 15% if they hold it for at least seven years. Finally, they can eliminate any capital gains taxes on their opportunity fund investment if they hold it for at least 10 years. This means that they can enjoy tax-free appreciation on their land development project in an opportunity zone.

4 What are the state and local incentives?

Besides the federal incentives, some states and localities offer additional incentives for investing in opportunity zones. These may include tax credits, grants, loans, abatements, exemptions, or other forms of support. For example, some states offer matching funds for opportunity fund investments, or allow investors to claim state tax credits on their capital gains. Some localities offer expedited permitting, reduced fees, or priority access to public services or infrastructure for opportunity zone projects. These incentives vary by jurisdiction and may have different eligibility criteria or application processes. Therefore, it is important to research and consult with local officials and experts before pursuing a land development project in an opportunity zone.

5 What are the best practices?

In order to leverage the federal, state, and local incentives for land development in opportunity zones, it is advisable to align your project with the needs and goals of the local community. This can help you build trust and support from the residents, businesses, and stakeholders in the area. Additionally, partnering with local organizations, institutions, or agencies can provide access to resources and networks that can facilitate your project. Furthermore, seeking professional advice and assistance can assist in navigating the complex rules and regulations of the opportunity zone program. It can also help optimize your tax planning and financial strategy while identifying and mitigating any risks or liabilities.

6 What are the benefits?

Leveraging the federal, state, and local incentives for land development in opportunity zones can offer several benefits for land developers. These include the potential to enhance returns and cash flow by deferring, reducing, or eliminating capital gains taxes; diversifying portfolios and exposure by investing in new markets and opportunities; and creating positive impact and value by contributing to the revitalization of low-income communities. In addition, investing in opportunity zones can create jobs, housing, services, or amenities that can improve the quality of life for residents. This long-term investment could also result in potential growth and appreciation of these areas.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?