Opportunity Zones

Overview

Opportunity Zones are a community development program established by Congress in the Tax Cut and Jobs Act of 2017 to encourage long-term investments in low-income and urban communities nationwide.

Background
Funds
Resources
Approved Zones
Contact

Background

Each Governor is authorized to designate 25% of the eligible census tracts¹ as Opportunity Zones in their state. In Minnesota, this means the Governor can designate 128² census tracts as Opportunity Zones out of an eligible 509 low-income census tracts. The Governor also has the option of including up to 5% of census tracts that are contiguous with an eligible census tract but are not themselves low-income tracts³. In Minnesota, the Governor could designate up to 7⁴ tracts as contiguous out of the state's 128 designated Opportunity Zones.

¹According to 26 U.C. Code 1400Z–1, a population census tract is eligible for designation as an Opportunity Zone if it satisfies the definition of "low-income community" (LIC) in 45D(e) of the Code.

²According to 26 CFR 601.601, Rev. Proc 2018-16.09: If the number of LICs in a State is not evenly divisible by 4, the 25% limitation is determined by rounding the fractional quotient up to the next whole number.

³Under 26 U.C. Code 1400Z–1(e) of the Code, a tract that is not an LIC is eligible for designation if both of the following conditions are met: (1) The non-LIC tract is contiguous with an LIC that is designated as a QOZ (the contiguous LIC QOZ need not be in the same State.); and (2) The median family income of the non-LIC tract does not exceed 125% of the median family income of that contiguous LIC QOZ.

⁴According 26 CFR 601.601, Rev. Proc 2018-16.09(3): If the number of designated QOZs in a State is not evenly divisible by 20, the 5% limitation is determined by rounding the fractional quotient up to the next whole number.
What are Opportunity Funds?

Opportunity Funds are a new class of private sector investment vehicles authorized to aggregate and deploy private investment into Opportunity Zones.

Opportunity Funds allow U.S. investors holding unrealized gains in stocks and mutual funds to pool their resources in projects located in Opportunity Zones, which will be invested in rebuilding low-income communities.

Opportunity Funds pool investments in Opportunity Zones.

U.S. investors are eligible to receive:
- A temporary tax deferral for capital gains invested in an Opportunity Fund.
- A step-up in basis for capital gains reinvested in an Opportunity Fund.
- A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund if the investment is held for at least 10 years.
Resources

On April 17, 2019, the Department of the Treasury and the Internal Revenue Service (IRS) released a second tranche of proposed guidance for the Opportunity Zones (OZ) program. The guidance clarifies questions from the investment community regarding how and when investments qualify for the program. Comments on the proposed regulations are due 60 days after publication in the Federal Register, and a public hearing is scheduled for July 9, 2019. Further details are contained in the Treasury and IRS press releases.
Designated Census Tracts

In accordance with H.R.1 Tax Cut and Jobs Act of 2017, Governor Dayton nominated 128 census tracts for designation as a qualified opportunity zone. On May 18, 2018, the U.S. Department of Treasury certified and formally designated these census tracts as qualified Opportunity Zones.
Contact

Stakeholders with additional questions about this process can contact Darielle Dannen, government relations director at DEED, or Ryan Baumtrog, Assistant Commissioner of Policy and Community Development at Minnesota Housing.