As president, here’s what Joe Biden would do to Opportunity Zones

The tax incentive program meant to encourage development in low-income communities has been criticized as a tax break for the wealthy

TRD NATIONAL /
Aug.August 24, 2020 08:00 AM
Joe Biden (Credit: Win McNamee/Getty Images)
Joe Biden (Credit: Win McNamee/Getty Images)

Over the last four years, President Trump has dismantled or drastically changed numerous rules and policies put in place under his predecessor, former President Barack Obama.

But if elected president, Joe Biden would only seek to modify the Opportunity Zones program, one of Trump’s signature measures in the 2017 federal tax overhaul.

Biden, who accepted the Democratic Party’s nomination on Thursday, says the Opportunity Zone program has not lived up to its goal.

“In too many instances investors favor high-return projects like luxury apartments over affordable housing and local entrepreneurs,” the Biden campaign said in a statement in late July.

Biden is not seeking to abolish the Opportunity Zones program or even revamp its major tax incentives like some Democrats have sought. Instead, he wants to reform the measure so it can “fulfill its promise,” he has said.

The changes could impact the way real estate developers and investors seek to invest in the program and which assets qualify as an Opportunity Zone investment, according to industry experts.

Opportunity Zones are meant to encourage development and job creation in low-income communities. By investing in one of the 8,700 designated zones throughout the country, developers and property owners have the ability to defer or forgo paying capital gains taxes. If they hold their investment for at least 10 years they can forgo their entire capital gains taxes on the Opportunity Zone investment.

Biden announced three proposed changes to the program as part of his plan to advance racial equity across the American economy.

He suggested incentivizing Opportunity Zone funds to partner with community organizations.

He is seeking to have the Treasury Department review Opportunity Zone regulations to ensure the tax incentives have clear economic, social, and environmental benefits to a community.

And he wants to create a system that requires developers who utilize the Opportunity Zone tax break to provide detailed reporting and public disclosure about their investments. That is among the biggest criticisms of the current program.

To some, Biden needs to go further.

“I would characterize it as well intentioned, but not nearly enough,” said Greg LeRoy, the executive director of Good Jobs First, which tracks economic development programs. “We don’t think the program should exist. We think that the way it’s been publicized and framed is deceptive.”

Reid Thomas of NES Financial, which administers Opportunity Zone funds, said one of the larger concerns for Opportunity Zones investors is the possibility of Biden raising capital gains taxes. By increasing capital gains taxes it could negate some of the benefits the program provides.

“Whenever there is uncertainty it causes people to slow down,” Thomas said. “What Biden is saying about capital gains taxes in general is causing people to be nervous.”

For others in the industry, there are questions about how Biden’s plan is going to incentivize investors to invest in certain Opportunity Zone tracts, and whether these qualifications will restrict investment from flowing into Opportunity Zones.

“If the certifications become onerous, you are going to see less funds operating Opportunity Zones,” said Jill Homan of Javelin 19 investments, a Washington, D.C., real estate investment firm that invests in Opportunity Zones.

Overall, investors have poured at least $10 billion into Opportunity Zones funds as of May, according to accounting firm Novogradac, based on over 600 Opportunity Zones funds tracked.

But despite the lucrative tax breaks, many investors and developers have opted against taking part in the program because of high land prices. Others aren’t willing to take a chance on neighborhoods that could take years to see results.


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