Titusville's Opportunity Zone
Opportunity Zones Program
Based on the City's census tract (CT), the federally-created and regulated Opportunity Zones Program has been introduced as an innovative approach to unlocking long-term private investment to support low-income urban and rural communities in every U.S. state and territory. Investors are eligible to receive certain tax benefits on unrealized capital gains reinvested in Opportunity Zones through pooled Opportunity Funds. The program is designed to minimize cost and risk to the taxpayer. Investors bear the risk on all their originally deferred capital gains, minus a modest reduction for long-term holdings, regardless of whether subsequent investments have increased or decreased in value. Neither tax credits nor public-sector financing is involved.
The program uses low-income community census tracts as the basis for determining areas eligible for an Opportunity Zone designation. Low-income census tracts are places with an individual poverty rate of at least 20 percent and median family income no greater than 80 percent of the area median.
A census tract that is not a low-income community may be designated as a qualified Opportunity Zone if the tract is contiguous with the low-income community designated as a qualified Opportunity Zone, and the median family income of the tract does not exceed 125 percent of the median family income of the low-income community contiguous with the tract. Up to 5 percent of the population census tracts designated as Opportunity Zones may qualify under this exemption.
Per state/territory, up to 25 percent of the total number of census tracts that qualify as an Opportunity Zone can be designated as an Opportunity Zone.
Opportunity Funds are a new class of investment vehicles (organized as a corporation or a partnership) that specialize in aggregating private investment and deploying that capital in Opportunity Zones to support Opportunity Zone Property. A minimum of 90 percent of Opportunity Fund assets must be invested in Opportunity Zones.
Opportunity Funds are envisioned as a market solution for investors who lack the information and wherewithal to execute investments in rural and low-income urban communities. The statute does not limit the number of funds that can be created, nor does it provide instruction on the nature of investments (i.e., risk/return profile).
Pooling capital through a fund structure provides an opportunity for a broad array of investors throughout the country to engage in the program.
Incentives for Activating Passive Holdings
The Opportunity Zones Program provides an incentive for investors to reinvest unrealized capital gains into Opportunity Funds in exchange for a temporary tax deferral and other benefits tied to long-term holdings. With trillions of dollars in unrealized capital gains sitting on the sidelines in stocks and mutual funds, U.S. investors can now roll passive holdings of capital into investments in distressed communities. No upfront subsidy is provided to investors; all incentives are linked to the duration of the qualified investment. The provision has two main tax incentives to encourage investment:
Allows for the temporary deferral of inclusion in gross income for capital gains that are reinvested into Opportunity Funds.
Investors can roll existing capital gains into Opportunity Funds with no up-front tax bill.
If investors hold their Opportunity Fund investments for five years, the basis of their original investment is increased by 10 percent (meaning they will only owe taxes on 90 percent of the rolled-over capital gains). If investors hold for seven years, the basis increases by a further 5 percent.
Investors can defer their original tax bill until December 31, 2026 at the latest, or until they sell their Opportunity Fund investments, if earlier.
Excludes from taxable income capital gains on Opportunity Fund investments held for at least 10 years. In other words, after settling their original tax bill, patient investors in Opportunity Funds will face no capital gains taxes on their Opportunity Zone investments.
For additional information on Opportunity Zones, please review these frequently asked questions from the Internal Revenue Service.