Opportunity Zone Funds Invested $29 Billion Through 2019
More than 6,000 qualified opportunity zone funds invested roughly $29 billion in low-income communities through 2019.
More than 6,000 qualified opportunity zone funds invested roughly $29 billion in low-income communities through tax-year 2019, according to a new report from the Government Accountability Office and based on preliminary data from the Internal Revenue Service.
The opportunity zone program was created to spur investments in distressed communities nationwide by offering potentially significant tax benefits to investors, particularly those who hold their investments long term. The 8,764 designated opportunity zone tracts are home to more than 10 percent of the nation’s population.
According to the GAO report, IRS data indicates that nearly 18,000 taxpayers were invested in opportunity zone funds during 2019. However, a comprehensive picture of investment activity is currently unavailable due to “COVID-19-related tax filing extensions, IRS processing delays, and incomplete transcription of paper-filed returns.”
The report indicated that most projects are real-estate focused and attracted investment in a variety of projects, including multifamily, self-storage, and renewable energy businesses.
The report indicated that the opportunity zone program “seems to be motivating some companies to invest in projects and locations that they otherwise would not have.”
The GAO randomly selected 18 opportunity zone funds to use as case studies, varying by fund size, number of investors, number of investments, and geographic focus. Representatives from 10 funds told the GAO that they would not have invested in their projects without the tax incentive.
Representatives from four funds said they would have considered, and likely invested in, different locations if not for the incentive. Representatives from other four funds said that they would have made the same investments regardless.
The funds had varying strategies for how long they plan to hold their investments. “While funds must hold their investments for at least 10 years before their investors can realize gains tax-free, funds can hold investments until the end of 2047 before selling,” the report said.
The GAO found that “many funds” plan to hold their investments for around 10 years and then sell to realize tax-free gains, while “some funds” plan to hold investments longer, potentially until 2047. One fund is planning to sell prior to the 10-year hold, and others have not determined how long they will hold investments.
The GAO surveyed government officials from 50 states, Washington, D.C., and the five U.S. territories, and 20 respondents said that they had a positive view on the overall impact of the opportunity zone tax incentive, 10 were neutral, five said there was no impact, one reported a negative impact, and 20 were not sure.
“One state responded that project leaders rarely understand the program and community leaders tend to be the least knowledgeable and sometimes view the incentive negatively for its capacity to contribute to gentrification,” the report stated.
States also reported investments tended to focus on real estate projects rather than in operating businesses and were centered in metropolitan areas as opposed to rural areas.
The GAO report was requested from a group of bipartisan lawmakers, including Senators Tim Scott (R-SC), Cory Booker (D-NJ), Charles Grassley (R-IA), Ron Wyden (D-OR), and Reps. Richard Neal (D-MA) and Kevin Brady (R-TX).
