TCJA Delivers New Opportunities & Opportunity Zones
By Rep. Virginia Foxx
Since the passage of the Tax Cuts and Jobs Act (TCJA) last year, I have been meeting with workers and business leaders across North Carolina’s Fifth District to hear firsthand how this legislation is impacting my constituents. The vast majority of Americans is seeing more money in paychecks, and small businesses have been reaping the benefits of a fairer tax code. Furthermore, the economy is roaring with GDP at a 4-year high, unemployment at an 18-year low and a record 7.1 million job openings across the country.
However, some communities were facing more challenges economically than others. That is why Republicans included the Investing in Opportunity Act in the TCJA to promote increased investments in underserved communities. We recognized that with lower tax rates and a reinvestment, these communities could thrive.
This provision of the TCJA allows qualified census tracts to be designated as “Opportunity Zones.” These census tracts, which are nominated by state governors, are comprised of low income households and in need of reinvigoration. In May, the Treasury Department approved 22 Opportunity Zones in the Fifth District and, last month, the Treasury Department and the IRS issued proposed regulations and guidance that will increase investment into these struggling communities.
The TCJA takes advantage of currently unrealized capital gains (the increase in value of an asset or investment) by allowing investors to set up Qualified Opportunity Funds to specifically invest in Opportunity Zones. Capital gains invested into these funds will receive preferential tax treatment and will thus yield higher returns for the investor. It’s estimated that $2 trillion in unrealized capital gains will be unleashed into these communities that will then reap the benefits of increased private investment.
To put this in perspective, imagine an investor with an asset that has increased in value by $50,000. If the investor chooses to sell the asset, that $50,000 is subject to a capital gains tax. Because of this tax, many investors just leave their investment alone to avoid paying the tax. But under the TCJA, this investor can defer the capital gains tax by investing that $50,000 into a Qualified Opportunity Fund.
Even with this financial incentive for investors, the communities that receive these investments are the real beneficiaries of this legislation. Opportunity Funds are required to invest at least 90% of their assets into a designated Opportunity Zone. This means that in order to take advantage of these tax benefits, funds will have to be directed into struggling and low-income communities. As a result, communities designated as Opportunity Zones will become more desirable places for investors to direct their money. This leads to more jobs, better wages and increased access to capital to start a small business or expand an existing one.
In short, instead of wasting millions of your hard-earned tax dollars on yet another ineffective and inefficient government program, Congress freed up the power of long-term private investment to give struggling communities that little extra push they need to succeed. I look forward to continuing my efforts to increase all types of opportunities for the people of the Fifth District and you can rest assured that I will continue to look for opportunities like this to promote economic growth and prosperity in your community.