With the creation of the federal Opportunity Zones incentive program, $6.1 trillion in untapped private capital gains investment will flow into 8,700 pre-designated low-income communities nationwide.
But will the investment benefit current residents, or will they be displaced as new interests bring increased property values and rents?
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. The zones were added to the tax code in December 2017.
The first set of zones were designated in April 2018 and covered parts of 18 states. Today, the program exists in all 50 states, the District of Columbia and five U.S. territories. To qualify, communities must be nominated by the state and be certified by the U.S. Department of Treasury.
New regulations create unique opportunity
The government recently released a second set of proposed regulations for the Opportunity Zone program, created to develop investment in economically-distressed census tracts.
Investors can defer tax on any prior capital gains invested in a QOF, until that investment is sold or exchanged, or by December 31, 2026. If the QOF investment is held for longer than five years, there is a 10% exclusion of the deferred capital gain. If held for more than seven years, the 10% becomes 15%.
Some believe that the program will further hurt disenfranchised communities because most Opportunity Zones are in majority black and brown neighborhoods, increasing concerns about gentrification and family displacement. Depending on how local policymakers manage the capital infusion, this wave could either enrich these communities or push out almost 19 million low-income residents across the country.
Others worry that struggling communities will continue to be left behind, while outside investors enjoy the tax preferences.
Disenfranchised communities can combat gentrification by leveraging legislation.
We can do this by bringing awareness to the program and by learning how it can fully impact our communities. We can create solutions and strategies to use the tax incentives as an advantage in promoting economic empowerment.
This idea was largely inspired by the late Los Angeles rapper, activist, real estate investor and entrepreneur Nipsey Hussle. Before his death in March 2019, Nipsey and his business partner Dave Gross launched an initiative called Our Opportunity. The initiative planned to rebuild black neighborhoods in South LA and beyond by using the Opportunity Zones program to reverse decades of neglect and disinvestment.
Gross continues the vision with support from politicians and celebrity activists who have advocated for the proposal on Capitol Hill.
Opportunity Zones can truly be a blessing for marginalized communities. If we mobilize financial professionals, real estate investors and entrepreneurs, we can take advantage of the massive opportunity. We can develop a team of investors – who either come from or currently live within the zones – that understands what our neighborhoods are missing.
By focusing black-owned Opportunity Zone funds, we can directly invest back into our small businesses and real estate developments. These investments will align with the spirit and integrity of uplifting historically-marginalized communities, empowering them to catalyze, drive, own and operate in their own neighborhoods. More importantly, we can avoid investments that enable gentrification, drive up real estate values and displace families.
Strategic fund investment tied to an experienced team of leaders, who hold genuine community relationships, can provide the solutions and value desperately needed to elevate current economic circumstances.