What is an Opportunity Zone?

An Opportunity Zone is a census tract that meets certain qualifying characteristics of distress and holds a formal designation by the U.S. Treasury as provided under the Tax Cuts and Jobs Act of 2017.  There are 8700 designated Opportunity Zones in the United States and 161 in the State of Missouri.  Opportunity Zones are located in 47 different Missouri cities and counties. The City of Warrensburg has two (2) designated Opportunity Zones (Opportunity Warrensburg NW and Opportunity Warrensburg SW).  Each Zone holds a 10-year designation.

What is the purpose of the Opportunity Zone Program?

The program serves as a means to stimulate private investment within the boundaries of the designated Opportunity Zone.

  • For communities, it is a tool to add to the economic development toolkit.
  • For developers and businesses, it creates a vehicle to attract additional financing to a viable development deal.
  • For investors, it is a means to gain access to a unique tax incentive.
How does the Opportunity Zone Program work?

The program focuses on the estimated trillions of dollars of “appreciated assets” nation-wide (such as stock or real estate) that, when divested or sold, will face a tax on the capital gain.  The program recognizes the investors desire to “avoid” the tax consequence by providing a mechanism to defer and reduce the tax on that capital gain.  Deferring the tax will delay the period in which the tax is due and reducing the tax will offset some of the amount of tax due.  If an investor places those capital gains realized from the sale of the asset into an Opportunity Fund for investing in a “qualified Opportunity Zone property”, then the investor may benefit from the deferral and reduction of taxes.  The minimum amount of time to invest into an Opportunity Fund is 5 years and the maximum is 10 years. Additionally, if the investor makes additional income from those investments in the Opportunity Zone, the additional earnings may not be subject to taxes.  Meanwhile, the access to the additional capital is facilitating viable deals and the Zone is benefiting from additional capital and project development, which are two essential elements of economic gain.

What is a “qualified Opportunity Zone property”?

Qualifying Opportunity Zone property may be:

  • Stock purchased after 12-31-17 from a Qualified Opportunity Zone business
  • Partnership interest acquired after 12-31-17 in a domestic corporation
  • Tangible property used in a trade or business if the property is acquired after 12-31-17 and the use is either new or substantially improved
Does each Opportunity Zone require its own Opportunity Fund?

An Opportunity Fund is a self-certified corporation or partnership formed for the purpose of receiving investor deposits and investing in qualified Opportunity Zone property located within Opportunity Zones.  Any Fund may invest in any Zone across the nation.  As with all private development, the developer/owner is responsible for securing the private financing for the deal.  The public sector may incent the development using other public funds (see Incentives and Financing).

More detail:

IRS https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

Economic Innovation Group https://eig.org/opportunityzones

CDFA https://www.cdfa.net/cdfa/cdfaweb.nsf/0/58AC9F3E62374E8A882583A2004A7E93

CDFI https://www.cdfifund.gov

Opportunity Zone details provided on this website are for information purposes alone and do not represent the full program rules or regulations.  The IRS continues to issue program policy and their materials should be consulted regularly.  Investors, developers and others interested in the program detail should seek the assistance of their own professional service providers.