Use of the Opportunity Zone Tax Incentive: What the Tax Data Tell Us

The Impact of Opportunity Zones on Private Investment and Economic Activity

“…5 According to U.S. Treasury rules, in order for a business to qualify as being in an OZ, it must have at least 70 percent of its property located in OZs (potentially more than one). As Coyne and Johnson (2022) OZs represent the first place-based policy that allows uncapped private investment into areas throughout the United States. The OZ provision is also fairly broad in terms of the type of investments that receive preferential tax treatment and are untied to any particular outcome, such as employment, as were many other previous efforts.…”

“…Almost 9,000 census tracts-out of about 75,000 in the United States-were ultimately selected as OZs in the middle of 2018, and rules for investors followed later that year. Coyne and Johnson (2022) estimate from IRS data that investors made at least $48 billion of qualifying investments in OZs by the end of 2020. Whether this investment was caused by the OZ tax provisions and whether it boosted economic activity in OZs are key questions for determining whether OZs will ultimately improve the well-being of OZ residents and reverse trends in rising geographic disparity.…”

Louisville's Economic Opportunity Zones: A Rerun of the Old Louisville Enterprise Zone Program?

“…The 2017 Tax Cuts and Jobs Act has created the latest round of zones targeted to help distressed areas. The legislation allows states to create economic opportunity zones (EOZs) based in census tracts which will be targeted for business investment and development through federal tax incentives through economic opportunity funds (Coyne and Johnson 2023).…”

“…Basically, capital gains on property (stocks, real property, etc.) can either be deferred or eliminated if invested long enough if used for investment in an EOZ by an investor whether the investor is an individual, partnership, or corporation (Coyne and Johnson 2023). Capital gains rates currently hover around 20%, and Congress is considering extending the EOZ program beyond 2026, the year it is scheduled to sunset and expire.…”

“…The most important goals of the program are to stimulate job creation and greater levels of investment and reduce poverty levels in low-income communities (LICs). Yet so far, most evaluations of EOZs in the US shows mixed results at best (Coyne andJohnson 2023, Sage, Langen, andvan de Minne 2023). Most of the investment being done by individual investors is by those in the top 1% of the income distribution, and most funding is going to tracts that are showing signs of progress of redevelopment before the EOZ legislation is passed (Tax Policy Center of Urban Institute and Brookings Institution 2024).…”