The Treasury Department on Friday outlined rules for investors seeking to finance development in under-served regions in exchange for significant tax breaks.
The proposed guidance would govern investments in so-called “opportunity zones” across the country that were created under the sweeping new Republican tax law. Treasury Secretary Steven Mnuchin estimated as much as $100 billion in private capital could be funneled into those areas.
“We want all Americans to experience the dynamic opportunities being generated by President Trump’s economic policies,” Mnuchin said in a statement. “This incentive will foster economic revitalization and promote sustainable economic growth, which was a major goal of the Tax Cuts and Jobs Act.”
For investors, the opportunity zones come with several tax advantages. Capital gains placed in a certified opportunity zone fund will not be taxed through the end of 2026 or when the investment is sold, whichever comes first. Any gains from the fund are permanently shielded from taxes if the investment has been held for 10 years. In addition, the initial investment will be discounted by up to 15 percent for tax purposes after seven years.
The proposed regulations clarify that only capital gains are eligible for preferred tax treatment. Investors who can participate include individuals, corporations, businesses, REITs and estates and trusts. Treasury said additional guidance will be released before the end of the year, with final rules likely to come in the spring.
“We felt it was important to issue the core guidance now that’s needed to get the funds up and operating and not wait until we have every question answered,” said a senior Treasury official who declined to be named.