Arizona Opportunity Zones

The U.S. Department of the Treasury on October 19, 2018 released long-awaited guidance on Opportunity Funds and Opportunity Zone investments. The proposed regulations and revenue ruling are meant to address issues related to getting funds established and making investments.

 

Opportunity Funds Guidance Update Webinar

The ACA's Opportunity Funds Guidance Update Webinar was held on Tuesday, October 30th. Experts from the ACA and Snell & Wilmer covered the proposed regulations and revenue ruling, providing detail on the issues related to getting funds established and making investments — and what it all means for Arizona.

 

The presentation materials as well as the video of the online webinar are available below. 

 

Arizona Commerce Authority Opportunity Funds Guidance Update Webinar Presentation

Opportunity Zones Program Presentation from Marc Schultz

Opportunity Funds Guidance Update Webinar Video October 2018

 

IRS is taking comments about the regulations and will hold a public hearing about them January 10, 2019. The proposed rules don’t cover every issue—more guidance is expected in the near future.

 

 What others have to say about the guidance:

Accounting Today
Economic Innovation Group
Novogradac & Company LLP

Associated Press
Bloomberg
New York Times
Wall Street Journal

 

 

BACKGROUND

 

Arizona’s Opportunity Zone nominations were submitted on March 21, 2018 and approved by the U.S. Treasury Department on April 9, 2018, making Arizona one of the first states in the nation to have its zones officially designated.

 

The federal Opportunity Zones program allows each state’s governor to nominate up to 25 percent of the qualifying low-income Census tracts as Opportunity Zones. It was created under a provision of the Tax Cuts and Jobs Act, which was signed into law December of 2017. Investors who reinvest capital gains monies in Opportunity Zone funds will receive reductions on capital gains taxes relative to the years of their investment. 

 

Investments held 10 years: taxable amount of the capital gains reinvested is reduced by 15% and no tax is owed on appreciation. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 10 years. Tax owed on the original $100 is deferred until 2026, and taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). No tax is owed on Opportunity Zone investment’s capital gain. Assuming a 7% annual growth rate, the after-tax value of the original $100 investment is $176 by 2028.*

 

Investments held 7 years: taxable amount of the capital gains reinvested is reduced by 15%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 7 years, selling in 2025. Taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). Assuming a 7% annual growth rate, the investor will owe $15 in tax (23.8% of $61) on the Opportunity Zone investment’s capital gain.*

 

Investments held 5 years: taxable amount of the capital gains reinvested is reduced by 10%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 5 years, selling in 2023. Taxable amount is reduced to $90 ($100 minus $10). Investor will owe $21 in tax on the original capital gains (23.8% of $90). Assuming a 7% annual growth rate, the investor will owe $10 in tax (23.8% of $40) on the Opportunity Zone investment’s capital gain.*

 

*Source: Economic Innovation Group, 2018

 

VIEW Arizona OPPORTUNITY ZONEs MAP

 

If you have additional questions regarding Arizona’s Opportunity Zone nominations, please contact us at commerce@azcommerce.com.