As the U.S. government shutdown drags into its 28th day, real estate investors are growing concerned with the future of the opportunity-zone tax incentives that are a part of the nation’s new tax plan.
Regulatory uncertainty amid the shutdown has cast doubt on the programs, whose primary aim is to incentivize real estate development in struggling communities. The Internal Revenue Service — which has furloughed the bulk of its employees during the government shutdown — also was forced to indefinitely postpone a Jan. 10 informative public hearing on the opportunity zone program. The IRS will announce a new hearing date once funding has been restored to the Treasury Department, the agency said.
Many real estate investors have been thrilled at the prospects of the opportunity zone tax incentives to not only boost returns but also help disadvantaged areas. Opportunity-zones offer investors in nearly 9,000 lower-income areas a deferral on capital gains taxes and an exemption on gains that are held for at least a decade.
Last year, there was a surge in site acquisitions in these zones, according to Realtor Magazine. About 58 percent more deals in the zones in the third quarter of 2018 occurred compared to the same quarter in 2017, according to Real Capital Analytics data.
For background, the Tax Cut and Jobs Act of 2017 contained a provision that allows investors to avoid taxes on capital gains if the money is reinvested in designated “Opportunity Zones.” The goal is to generate economic activity in areas that have fallen on hard times. To qualify as an opportunity zone, areas must have above-average unemployment rates and income significantly below the regional median. More than 8,700 areas in the U.S. that encompass about 35 million residents have been certified by the U.S. Department of the Treasury as opportunity zones.
Many major players were raising funds to deploy in the opportunity zones. Dozens of funds have started capital-raising efforts, including PNC Bank, Goldman Sachs, Fundrise, RXR Realty and several others. Market players estimate that over the next few years, opportunity zone funds could draw up to $100 billion of capital.
A protracted government shut down, however, could damper participation in and impact of the program. To learn more on the program, check out some of Think Realty’s coverage here.