The Opportunity Zone program was enacted in last December's Tax Cuts and Jobs Act. Many of the major policy decisions related to Opportunity Zones were ceded to the states, and as of March, governors have nominated up to 25% of the qualified census tracts in their state for Qualified Opportunity Zones. The definition of ‘‘qualified census tract’’ for this purpose is generally any census tract that has a poverty rate of at least 20% or that has a median income that does not exceed the higher of 80% of the median income of the metropolitan area or of the statewide median income; governors were able to designate specific Census Tracts to include in the program, up to 25% of the Tracts in the state. The designations are effective until December 31, 2028. 100% of the Census Tracts on Puerto Rico and the rest of the U.S. Territories are eligible.
An Opportunity Fund is any corporation or partnership that invests at least 90% of its assets in Opportunity Zone businesses. The Opportunity Fund must be ‘‘certified’’ under rules to be promulgated by the Treasury Secretary. Opportunity Zone Funds will be capitalized by investors that sell assets such as stocks, bonds and/or real estate on which capital gains tax is owed; if the cash proceeds from such a sale are deposited into an Opportunity Fund within 180 days, and the investment is held for ten years or more, the investor can completely eliminate capital gains tax on the sale proceeds.
To qualify as an Opportunity Zone Business substantially all of the tangible assets of the business must be used in an Opportunity Zone, at least 50% of the gross income earned by the business must be from the active conduct of a business in the Opportunity Zone, and the business can hold only a limited amount of investment assets. With the exception of a limited number of ‘‘sin businesses,’’ almost any type of business will qualify.