The Qualified Opportunity Zones (“QOZ”) program is a creation of the Tax Cuts and Jobs Act of 2017, intended to encourage economic growth and development in underserved communities by offering tax benefits to investors. This program holds enormous potential for commercial real estate investment and development in the Zones – but the federal agencies’ rulemaking on it is incomplete, so the full breadth of the program and how it will function is not yet known.
Under the program, the states, territories, and Washington, DC, all nominated areas (by census tract) to be “Opportunity Zones,” which the IRS selected from and certified (these designations were finalized in 2018). The Zones are in underserved communities, and since census tracts can be small, some are sandwiched between neighborhoods that have already seen significant development and growth, especially in urban areas. In order to qualify for tax benefits, investors must create “Opportunity Funds” to invest in the QOZs. Anyone can create an Opportunity Fund, but it must be made using capital gains from a previous sale which are rolled into the fund within 180 days.