The Real Winner of the 2024 Election? Opportunity Zones
By Damon Elder
Insights From the Publisher: Uncertainty has surrounded qualified opportunity zones since the program’s inception. With the return of President Trump, QOZs are poised for growth.
By Damon Elder, publisher and editor-in-chief, The DI Wire
Donald Trump won the 2024 U.S. presidential election, continuing the tradition of free and fair elections that have been a hallmark of American democracy for more than 200 years. He also become just the second American president in history to win non-consecutive terms, an impressive and improbable political success story. But the big winner likely to emerge from the 2024 election is the federal qualified opportunity zones program.
For the alternative investments industry, one of the most significant outcomes of President Trump’s first term was the passage of the Tax Cuts and Jobs Act of 2017 and with that, the introduction of qualified opportunity zones, or QOZs – an economic development tool designed to incentivize investment in distressed areas across the United States. QOZs encourage this investment through three significant tax benefits:
- Deferment of capital gains until Dec. 31, 2026;
- Reduction of up to 15% of the capital gain tax liability, depending on when the investment was made; and
- Elimination of the tax on gains earned from QOZs if held for at least 10 years.
Supporters claim that, in many ways, the program has made a significant positive impact. According to Novogradac, the national services organization that tracks 2,022 QOZ funds (the investment vehicle that allows for investment in QOZs), qualified opportunity zone funds have raised more than $39.54 billion in equity from inception through the end of 2023, a nearly 16% jump from the end of 2022. Furthermore, Novogradac states that its figures do not include proprietary or private funds owned and operated by their principal investors, which means that actual opportunity zone investment could be as great as four times the Novogradac total.
Additionally, the Economic Innovation Group reports that poverty rates, vacancy rates, and income levels all improved faster, and from lower baselines, in opportunity zones as compared to other non-opportunity zone groups. Between 2017 and 2022, poverty in opportunity zones fell by 3.6%, more than twice the national rate of 1.4%. Over the same time period, median household income within opportunity zones grew by 24%, double the 12% national average, and housing vacancy fell by 1.3%. The opportunity zone designation also helped to increase job growth by up to 4.5% in metropolitan areas, relative to comparable non-opportunity zone areas, according to a 2024 study led by academics from the University of Wisconsin-Madison, Rutgers University, the University of Utah and the Yale School of Management.
Despite these outcomes, the QOZs program is set to sunset on Dec. 31, 2026. Proponents have unsuccessfully been calling for it to be extended, or even made permanent, for the last several years. With President Trump’s re-election and GOP control of both houses of Congress, it seems far more likely than not that the life of QOZs will be extended for at least several more years – potentially unleashing a flood of equity into opportunity zone funds.
A Pathway to Boost Investment
According to Bloomberg Law, more than 60% of investors, developers, and other stakeholders expressed either uncertainty about tax legislation, or the 2026 capital gains deferral deadline as the reason for not investing in the QOZs program. With an extension, both of these issues would be solved.
When the QOZs program was first enacted, it took about two years for final regulations to be issued. During that time, many potential investors watched from the sidelines, awaiting clarification of the rules for QOZs. With the program now up and running, a two-year extension is likely to encourage many of those investors to take the plunge.
Additionally, proposed opportunity zone legislation has called for the creation of pathways for smaller-dollar impact investments. Qualified opportunity funds may be organized as a “fund of funds” under the new extension, allowing for the investment in other QOFs or smaller impact-oriented projects that could benefit local communities. With a lower barrier to entry, possibly coupled with an expanded accredited investor definition, investment in the QOZs program could grow even further.
A More Transparent QOZ Program
An extension of the QOZs program will likely bring with it other significant changes, including the reinstatement and expansion of reporting requirements – the lack of which up until this point has been criticized broadly by both detractors and proponents. Original reporting requirements were removed from the program, and reinstating them would promote greater transparency and allow for improved tracking of the long-term results, which could also support interest in the program.
In addition, QOZs may further be supported by the sunsetting of a certain, small number of non-low-income zones. These zones may be replaced with more high-need communities, which may drive interest from those intrigued by the social side of the program. Similarly, these high-poverty communities could be supported by a State and Community Dynamism Fund, which would provide grants and help drive capital to QOZs. Furthermore, legislative changes have also been proposed that may help QOZs to interact with other tax incentives, such as new markets tax credit or low-income housing credit, making the combination of incentives potentially even more effective.
Proposed legislation, such as the OZ Transparency Extension and Improvement Act, seems designed to address past criticisms of the act while making it even more investor friendly, and with President Trump back in the White House and Republican control of Congress, the bill can be passed through reconciliation, a process that allows expedited passage through a simple majority vote.
While President Trump will certainly face challenges during his presidency, the QOZs program seems to be on the cusp of a potential new wave of investment, especially from those who may have been previously hesitant. President Trump and congressional Republicans are the obvious winners of the 2024 election, but the QOZs program, as well as those who benefit from them, are the real winners of this election.
Damon Elder is the publisher and editor-in-chief of The DI Wire, as well as president of Spotlight Marketing Communications. He has worked in the alternative investments industry for nearly 20 years and was previously a congressional aide and political consultant before finding honest work in the private sector. Agree or disagree with what you read here? Share your views with him at damon@thediwire.com. Thoughtful replies may be published in The DI Wire.
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