Established by the 2017 Tax Cuts and Jobs Act, the Opportunity Zones program was created as an innovative economic development tool to stimulate long-term investment and job creation in economically-distressed communities.
Opportunity Zones are census tracts, recommended by the governor, and designated by the U.S. Treasury Department. Each state can designate up to 25% of its eligible low-income census tracts as Opportunity Zones.
Texas designated 628 census tracts in 145 counties as Opportunity Zones.
Of the 628, Harris County contains 105 opportunity zones or just over 16% of the total for Texas.
The City of Houston contains 99 of these designated opportunity zones.
Through Opportunity Zones, the City of Houston aims to encourage both practical and innovative investment in designated Opportunity Zones in a manner that extends benefit to both investors, as well as the existing residents and businesses.
So, how do Opportunity Zones work?
Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund or QOF (Don’t worry, I got you) until the date on which the investment is sold/exchanged, or December 31, 2026, whichever comes earlier.
If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.
If held for more than 7 years, the 10% becomes 15%.
If held for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. Basically, the investor doesn’t owe federal income taxes on the fund’s appreciation.
Where are the City of Houston Opportunity Zones?
Here’s a map:
What are some of the City of Houston’s investment priorities?
The City of Houston’s investment priorities are:
1. Affordable and/or Workforce Housing
2. Retail Development and Food Desert Mitigation
5. Investments with Complete Communities
There are a few restrictions however on the type of business that qualify for opportunity funds within Opportunity Zones. Those include: liquor stores, massage parlors, hot tub facilities, suntan facilities, racetracks/gambling facilities, golf course and country clubs.
Houston is still one of the most affordable places to live, and Opportunity Zones are a tool to keep it that way.
Pretty cool stuff, right? If you want to learn more, check out the City of Houston Prospectus on Opportunity Zones. A lot of the information provide here is from the Prospectus and the City of Houston’s Economic Development Program.