Opportunity Zones are part of a federal tax incentive provision that encourages investors to re-invest capital gains into Qualified Opportunity Zone Funds, which then invest in businesses, real estate, or business assets located in an Opportunity Zone.
Disclaimer: The Opportunity Zone tax provisions are not administered by the City of Austin. Current law and guidance provides no regulatory oversight by a local or state government. The following information is intended for resource and educational purposes only and does not endorse a specific opportunity zone fund.
The Opportunity Zone tax provisions were created by the 2017 Tax Cuts and Jobs Act. The Opportunity Zone tax provisions provide investors the ability to re-invest capital gains into a fund that, in turn, invests in projects located in designated census tracts. In exchange for this investment, investors receive a decrease, deferral, and possible exclusion of capital gain tax liabilities. Qualified Opportunity Zone Funds may invest in businesses, real estate, and business assets located within designated “Opportunity Zones.”
Tax Incentives Types
The Opportunity Zone provisions offers three types of tax incentives in which investors may realize deferred, decreased, or permanently excluded capital gains based on the amount of time the funds remain within a Qualified Opportunity Zone Fund.
Temporary Tax Deferral – A deferral of capital gains realized after 2017 and reinvested into a Qualified Opportunity Zone Fund.
Step-Up in Basis – A step-up in basis of up to 15%, subject to meeting reinvestment period thresholds of 5 years (+10%) and 7 years (+5%).
Permanent Exclusion – The permanent exclusion of capital gains realized from the investment in a Qualified Opportunity Zone Fund, if the investment is held for at least 10 years.
Qualified Opportunity Zone Funds
To qualify for Opportunity Zone tax incentives, funds must be invested and deployed from Qualified Opportunity Zone Funds. These funds are set up to assist in the regulation and reporting of Opportunity Zone projects.
Dec. 31, 2019 – Last day to invest in Qualified Opportunity Zone Fund to recognize maximum program benefits
Dec. 31, 2021 – Last day to invest in Qualified Opportunity Zone Fund to realize a 10% Step-Up in Basis
Dec. 31, 2026 – Forced recognition of capital gains invested into Qualified Opportunity Zone Funds
Dec. 31, 2028 – Federal designation of Opportunity Zones expires
Final guidance regarding the Opportunity Zone tax provisions is continuing to be developed.
Opportunity Zones and the City of Austin
There are twenty-one (21) census tracts designated as Opportunity Zones in the City of Austin. The majority of zones are located to the east of Interstate 35. To view these designated tracts, please visit this site.
In October 2018, City Council tasked the Economic Development Department to research and provide recommendations on specific considerations relating to the Opportunity Zone tax provisions. For more information, please see the original resolution and recommendations:
If interested in Federal guidance and resource, please visit the following link.