Opportunity Zones – What Are They and Why Do They Matter to LA?
Who wants to talk 2017 tax reform? What if I told you those tax laws could be the key to changing some of Los Angeles’ most downtrodden neighborhoods?
A few years ago, a million changes were made to the tax laws that only your accountant will ever know about. But tucked into the 185-page bill was the creation of The Investing in Opportunity Act. That Act made it possible, and possibly even profitable, to revitalize some of the most hurting areas across the country.
I’ll spare you the minutiae, and instead give you the CliffsNotes version and why this matters greatly to you and your city. In the Investing in Opportunity Act, Opportunity Zones were created with an intent to stabilize and develop economically struggling areas in ways that will be sustainable (read: using private sector money).
Here’s the breakdown:
What Are Opportunity Zones?
Opportunity Zones are specific census areas (something equivalent to a neighborhood) that are generally made up of economically distressed communities. Since the 2017 Tax Cuts and Jobs Act introduced Opportunity Zones, more than 8,700 specific locations/neighborhoods have been labeled as such and retain that designation for at least 10 years.
Why Should I Care About This?
Opportunity Zones were created to stimulate private investments into distressed communities in exchange for capital gains tax incentives.
In Layman’s Terms, Please!
Let’s say you sell property, stock, etc… for a profit, and rather than paying a tax of sometimes 20% or more on that profit (capital gain), you can invest that profit into a development project in a designated Opportunity Zone, and not have to pay any capital gains tax. What?! In real dollars, let’s say you own a property that was originally purchased for $100,000 and years later you sell it for $500,000. That’s a profit of $400,000. The capital gains tax on that profit could be around $80,000, depending upon your tax bracket. You could go ahead and just give that money straight to the government for them to allocate as they please. OR, you could use that $80,000 to invest in something within an Opportunity Zone, keep that money in the family, inject much needed income into the local economy, and assuming these positive projects begin to revitalize that community, eventually sell and make a profit on your $80,000 initial investment.
If this is you, why are you paying Capital Gains Tax when you can be investing in a neighborhood that needs more affordable housing, senior housing, etc…?
Okay, So Explain Again How This Benefits Downtrodden Communities?
If you are selling property, stock, etc… and stand to make a profit that will require paying capital gains tax, listen up! Take that money you’re supposed to pay to the government and instead, reinvest it into an affordable housing development, a new business, or some other project that will spur economic growth in an Opportunity Zone.
If you own property or a business in an Opportunity Zone, listen up! Around the country, local churches are beginning to partner with developers to develop land they own within Opportunity Zones. Also, through joint ventures, local churches are working with developers to take assets they own and turn them into affordable housing, senior housing units, or incubators/accelerators for local businesses. There are a myriad of ways this might work, especially in Los Angeles, given that California has more Opportunity Zones than any other state in the United States.