This week, the federal government released new guidelines for the nation’s more than 8,700 “opportunity zone” communities trying to attract venture capital investment and boost their struggling economies.
Rural areas account for 40 percent of the designated opportunity zones, which offer private companies and investors tax breaks in exchange for investing in certain low-income communities. But some warn that even with the tax incentives, many rural areas still likely won’t benefit unless state and local governments intervene to make the investment less risky. The zones were created by the 2017 federal tax overhaul as a way to entice companies to invest in underdeveloped areas. Investors can reduce the capital gains taxes they owe on previous investments if they invest those gains in opportunity zone communities for at least seven years. They can eliminate that tax bill entirely if they let the money ride for a decade.
But that’s not enough for most firms and investors to take the leap in rural areas — even if places try to sweeten the deal with additional state and local tax breaks. Under the new rules, investors will be allowed to share or sell their stakes in an opportunity zone fund or their interest in a start-up as long as the money is reinvested in another qualifying business or asset. The new rules also clarify that long-vacant properties will immediately qualify for the tax breaks.
John Lettieri, president of the Economic Innovation Group, praised the new guidance, saying it “removes many of the impediments that have kept capital on the sidelines instead of flowing into communities and supporting local growth.”
(Read more: GOVERNING.com)