As part of the Tax Cuts and Jobs Act in December 2017, about 8,700 census tracts in the United States were designated as Opportunity Zones, providing attractive tax benefits for private investment in low-income areas. The State of Wisconsin has designated three such tracts in the City of Eau Claire, providing a great opportunity for developers, investors, and city residents.
Opportunity Zones in Eau Claire
Opportunity Zone incentives can be combined with other city and state development initiatives and incentives. Three census tracts have been designated as Opportunity Zones in the City of Eau Claire. The zones extend through the heart of Eau Claire and offer a mutually beneficial opportunity for developers, investors, and city residents. They are:
- Water Street and West Grand Ave BIDs, Historic Randall Park Neighborhood, Medical District
- South & North Barstow BIDs and North Barstow Redevelopment District
- North Riverfronts Neighborhood, North Side Hill
On August 14, 2018, the City and Downtown Eau Claire, Inc. held an Idea Lounge to introduce the concept of Opportunity Zones. See the City Presentation here.
Stay tuned for more information resources for interested parties from the Eau Claire Economic Development Division before the December 2019 first investment deadline!
Qualified Opportunity Funds
In order to receive tax benefits from the program, investments are made in Qualified Opportunity Funds (QOFs). Capital gains can be invested in these partnerships or corporations, allowing investors to defer capital gains taxes from previous investments for up to seven years and to avoid paying taxes on QOF investment appreciation after 10 years.
QOFs can take the form of narrowly focused development corporations, partnerships, and properties for the purpose of making substantial property improvements in Opportunity Zones. Funds self-certify with a form provided by the IRS (forthcoming), but do not require IRS pre-approval before investment
QOF must hold 90% of assets in qualified Opportunity Zone properties. They can make investments in businesses with at least 70% of their assets in Opportunity Zones. See this Key Terms and Requirements worksheet for a great summary of these requirements.
Tax Benefits
The program is attractive to investors as a way to defer and reduce taxation for capital gains from previous investments for up to seven years. However, funds must be invested by December 31st, 2019 to receive the full benefit of this program.
- 10% of deferred capital gain investment will be permanently excluded from federal taxation after 5 years of QOF investment
- 15% of deferred capital gain investment will be permanently excluded from federal taxation after 7 years
- Any appreciation on QOF investment will be tax-exempt at the time of sale after 10 years
The IRS is allowing investors to continue to claim tax benefits from the program until 2048.
Source: NDC-Opportunity Zone Implementation (https://ndconline.org/wp-content/uploads/2018/07/NDC-Opportunity-Zone-Implementation-20180727.pdf)