Tax Reform Establishes Municipal Opportunity Zones for Investment

Included in the recently enacted federal tax reform legislation is the Investing in Opportunity Act (the “Act”) which establishes the Opportunity Zones Program (the “Program”). The Program aims to spur private investment in disadvantaged communities across the country by establishing Opportunity Zones in low-income urban and rural communities and providing incentives for private investors to invest their unrealized capital gains in exchange for a temporary tax deferral and other benefits tied to long-term holdings.

Opportunity Zone Eligibility

Opportunity Zones are determined on a census tract basis. The Program uses the New Market Tax Credit definition of a “low-income community census tract” as the basis for determining eligibility for Opportunity Zone designation. A “low-income community census tract” is a census tract with either (i) an individual poverty rate of at least 20%, or (ii) a median family income of no more than 80% of the area median.  In Connecticut, more than 1/3 of all census tracts qualify as low-income communities.  Governors will be able to designate up to 25% of the total number of “low-income community census tracts” in a state as Opportunity Zones.

Opportunity Zone Deadlines

The deadline for Opportunity Zone designation is approaching fast; Governor Malloy has until March 22, 2018 to make nominations to the U.S. Secretary of the Treasury for Opportunity Zones to be designated in Connecticut. The Treasury must approve or provide feedback within 30 days of the Governor’s submission. Once approved by the Treasury, Opportunity Zone designations will remain in place for a period of 10 years.

Municipalities and developers interested in requesting that the Governor nominate certain low-income community census tracts to be designated Opportunity Zones should request such nominations as soon as possible.