Opportunity Zones are becoming increasingly more talked about as having the potential to see significant real estate investment. As we previously wrote in, Will New Qualified Opportunity Zones Change Where to Invest In Philadelphia and the Suburbs?, we see Philadelphia opportunity zones as having the potential to see a high-level of new development and an influx of new real estate investments both institutional and individual.
For those asking, “What is an Opportunity Zone.” The answer from the IRS is,
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation authority to the Internal Revenue Service.
The Brookings Institute has an explanation on how some of the benefits for investors could be realized.
For background, Opportunity Zones offer favorable capital gains treatment for taxpayers who invest in designated high poverty neighborhoods. Invest in real estate or businesses located in a qualified zone, hold it for ten years, and not only can you sell your investments free of capital gains tax, but you also you get a tax break on untaxed capital gains rolled into an Opportunity Zone investment. Individuals in a high-tax state and with short-term capital gains can avoid $7.50 in taxes for each $100 they invest, even before considering any return on their Zone investments. It’s very favorable treatment.
Jon Banister has some interesting insights on how much money could potentially be invested in Opportunity Zones in a recent Bisnow article, Investors Lining Up To Pour Billions Into Opportunity Zones. He writes,
The program, part of the Tax Cuts and Jobs Act President Donald Trump signed into law in December, gives large tax breaks to investors who place capital gains into funds that invest in opportunity zones, a set of largely low-income areas across the country.
Treasury Secretary Steven Mnuchin last week predicted $100B of capital would be invested into opportunity zones.
Steve Glickman, the original architect of the Opportunity Zone policy, who launched a consulting firm last month to advise investors on the program, said he has spoken with hundreds of investors eager to deploy money into opportunity zones. “We always knew this would be a larger incentive than any previous community investment program, but I think the actual market demand and interest is way higher than even I thought earlier this year,” said Glickman, who will speak Oct. 16 on Bisnow’s D.C. Opportunity Zones event.
Philadelphia and the suburbs have a number of Opportunity Zones. The PA website has more information on locations including an interactive map.
The site also explains the criteria that went into determining the selection of sites.
Areas That Need Economic Investment
- 120 tracts or 40% above 35% poverty rate
- 198 or 66% of tracts have a median family income lower than the average of all eligible tracts
- 202 or 67% of tracts have unemployment rate higher than 10%
Existing Business Activity
- Does the area have an anchor (airport, hospital, large employer)?
- What is the likelihood of private sector-driven low- to moderate-income or affordable housing being developed in the tract?
- Will future development in the tract build on previous and ongoing public investments in infrastructure?
Potential For Investment
- Consideration was given to population centers throughout Pennsylvania which have potential for investment.
Pennsylvania Opportunity Zones Map
Philadelphia Opportunity Zones Map
Philadelphia Suburbs Opportunity Zones Map