Opportunity Zones


In March, City Council received an update from Community Development on the potential adoption of Opportunity Zones in Eugene. Follow this link for the City Council meeting materials. A census tract was eligible for designation if it had an individual poverty rate of at least 20 percent and median family income no greater than 80 percent of the area median.

 

In Eugene, there are three census tracts that have been designated by the Treasury Department as Opportunity Zones. They include downtown Eugene, the riverfront and campus area, and the Bethel neighborhood (see map).
 

Opportunity Zones are an incentive program resulting from the 2017 Tax Cuts and Jobs Act, enacted by the U.S. Congress. These zones are intended to encourage investments in low-income communities towards development and business through Opportunity Funds. 


Opportunity Funds encourage investment in them by allowing investors to reduce their tax burden from capital gains.


The interactive map below allows you to see if your project falls within an opportunity zone, the Enterprise Zone, or the MUPTE boundary.

OZ flow defined


There are three major components to Opportunity Zones:

  • Investments: Opportunity Funds make equity investments in businesses and business property in Opportunity Zones.
  • Funds: Opportunity Funds are investment vehicles organized as corporations or partnerships for the specific purpose of investing in qualified Opportunity Zones.
  • Zones: States and territories nominated 25% of their eligible low-income census tracts as Opportunity Zones. Treasury approved the final map, which resulted in Eugene's designated three.


There are three incentives for putting capital to work in the Opportunity Zone areas:

  • Temporary Deferral: An investor can defer capital gains taxes until the end of 2026 by rolling their gains directly over into an Opportunity Fund.
  • Tax Liability Reduction: The deferred capital gains liability is effectively reduced by 10% if the investment in the Opportunity Fund is held for 5 years and another 5% if held for 7 years.
  • Tax Exemption: Any capital gains on subsequent investments made through an Opportunity Fund accrue tax-free as long as the investor stays invested in the fund for at least 10 years.

How Opportunity Zones Work

OZ example
OZ example with OF
OZ example after 10

The example above, beginning in December 2018, shows an investment resulting in capital gains. Those capital gains are addressed in two ways in the example:

  1. By paying the Federal tax on long-term capital gains, or
  2. By investing in an Opportunity Zone via an Opportunity Fund.

As the example proceeds from December 2018 to December 2028, the capital is sent to an Opportunity Fund with a Fund Manager. The Fund Manager invests the capital into the Opportunity Zone in one of three ways, listed below. Each of these investments is outlined in further detail in the IRS's most recent publication for Opportunity Zones. Follow this link to the IRS website.

  1. Stock of a qualified Opportunity Zone corporation,
  2. Partnership interest in a qualified Opportunity Zone partnership, or
  3. Business property used in qualified Opportunity Zones.

The example ends in December 2028 with the investor maintaining the initial capital in the Opportunity Fund for just shy of ten years. The investor is entitled to a 15% reduction in capital gains tax and a deferral in its payment through 2026.

The IRS issued a frequently asked questions on Opportunity Zones. To review the FAQs follow this link to the IRS website.


For more information about Opportunity Zones, contact Allie Camp