In December 2017, President Trump signed a new tax bill, the Tax Cuts and Jobs Act, into law. At the time, the changes in individual tax brackets and cuts to corporate taxes dominated the news cycles. However, there was a lot more in the law than the provisions that got top billing.
For instance, there were a number of incentives included in the law designed to boost investment in distressed communities throughout the country, including the Qualified Opportunity Zones provision. Under the 2018 tax law, governors throughout the country were empowered to nominate up to 25% of all low-income tracts of land in their state. Georgia, along with a number of other states, submitted its nominated areas and awaited a response.
On April 9, the Department of Treasury and the IRS announced the first round of census tracts that will receive the “opportunity zone” designation. Of Georgia’s proposed 260 tracts (the maximum number allowed under the law), all were awarded the Qualified Opportunity Zone designation.
Qualified Opportunity Zones, Explained
So what does this mean? First, let’s take a closer look at what qualifies a particular area to be a Qualified Opportunity Zone. In order to be nominated, each census tract needed to either have a poverty rate of at least 20% or a median family income no greater than 80% of the surrounding area. Once designated, any new investments made to develop within these communities will receive preferential tax treatment.
There are a number of benefits conferred to those who choose to concentrate investment in these designated areas. Investors can defer tax on any prior gains until (at the latest) December 31, 2026 as long as the gains are reinvested back into a Qualified Opportunity Fund** and if the investor keeps his or her investment in the Qualified Opportunity Fund. If the investment remains in that fund for at least ten years, the investor will be eligible for an increase in its basis equal to the fair market value of the investment on the date it is sold.
** A Qualified Opportunity Fund is an investment vehicle created specifically for investments made in Qualified Opportunity Zones.
How Does This Impact Atlanta?
Throughout the state of Georgia, 260 low-income communities are now designated Qualified Opportunity Zones. These tracts are present in 83 counties and are 60% rural and 40% urban. Fulton, DeKalb, Gwinnett, Cobb, and Clayton counties all have new Qualified Opportunity Zones, and the surrounding metropolitan counties are home to even more. To learn more about the 260 Qualified Opportunity Zones in Georgia, click here to view the list of census tracts.
In each of these zones, this designation is intended to attract private-sector investment. Governor Nathan Deal stated, “By attracting more private investment to underserved areas, the tax incentives for Qualified Opportunity Zones will further encourage businesses to invest in the communities that need it most, while also creating meaningful employment opportunities across the state. … [T]hese tax incentives represent another step forward in their economic revitalization.” The program is administered by the Georgia Department of Community Affairs (DCA). To read that department’s answers to frequently asked questions about this program, click here.
We Can Help
If you are interested in learning more, or if you are thinking about investing in a Qualified Opportunity Zone, contact us at Brian M. Douglas & Associates. We would be happy to discuss your options and help you determine whether this real estate investment opportunity is for you.