CBC is a nonpartisan, nonprofit organization pursuing constructive change in the finances and services of New York City and State. An Opportunity Zone is a low-income census tract with an individual poverty rate of at least 20 percent and median family income no greater than 80 percent of the Area Median Income (AMI). a program of nyserda. Brooklyn leads the way with 39,937 parcels, followed by Queens with 27,046 parcels, the Bronx with 15,138 parcels, Staten Island with 5,315 parcels, and Manhattan with 4,946 parcels. OPPORTUNITY ZONES; Below map displays available listings that fall within the Opportunity Zone program designated areas. The demographics of most high-poverty/low-income tracts will likely remain constant, but a number of tracts designated as OZs in New York have undergone substantial demographic changes over the last decade. Write on Medium, This Woman Found A Whole-Ass Apartment Behind Her Mirror And I Want My Mommy, The Fate Of Elon Musk’s Assistant Is A Cautionary Tale For Negotiating Salary. In state fiscal year 2018, corporations, banks and insurance companies paid $4.2 billion in taxes, while in New York City, the general corporation and unincorporated business income taxes generated nearly $6.4 billion in revenue. I t was a telling moment for those fixated on Opportunity Zones. Facebook; Twitter; Can underserved communities be lifted with targeted investments? The tracts with median family incomes more than $100,000 were located in Downtown Brooklyn, the East Side of Manhattan, and in Buffalo. Another option would be to limit the number of OZs in which taxpayers could claim state benefits. With the OZ benefits, she can defer taxes on her original gain until 2026, at which point she would owe $1,550. Qualified Opportunity Zones (QOZs) span the entire state of New York—they can be found across NYC’s five boroughs, to the beaches on Long Island, and the mountains upstate. Leadership. It would also mirror the reporting requirements of other place-based state and city incentive programs. Following the passage of TCJA, legislators have introduced bipartisan legislation in the U.S. Senate that would require funds to report on their investment activities and their impacts on job creation and housing production. Gains realized by corporations are taxed at the regular corporate tax rate of 21 percent.9. C corporations are also subject to capital gains taxes, but do not receive preferential tax treatment. The actual fiscal impact will depend on the amount of gains that taxpayers realize, the share of gains reinvested in OZs, the timing of initial investments and liquidations, and taxpayers’ effective tax rates. 3. While stakeholders have expressed hope that the program will increase investment in marginal projects, some investors have said the program would not incentivize them to make investments they would not make without the tax benefits.11 Equity investors who receive the tax benefits will still demand a return on their investments, whether through a share of annual operating income or proceeds upon sale, independent of the incentive. Opportunity Zones: What is All the Fuss About? Using data from the 2013-2017 ACS 5-Year Estimates instead of the 2011-2015 Estimates, just 69 percent of high-poverty/high-income tracts and 82 percent of low-income/low-poverty tracts that were selected still meet OZ eligibility guidelines. 212-279-2605, 515 Broadway, 4th Floor The State can require Opportunity Funds operating in New York State to report on their activity in order to qualify for state tax benefits. In order to qualify a census tract as an opportunity zone, a census tract must be nominated by the state governor and CEO of U.S. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Investment Research . The Opportunity Zone program allows both individuals and corporations with capital gains to reinvest the gains into Qualified Opportunity Funds. For example, the legislature could pass a bill that would limit benefits to residential projects that meet a minimum affordability threshold for a fixed set of time or to commercial projects that are consistent with an REDC strategic plan. As shown in Table 3, the tracts selected fall into four categories: The OZ program could be costly to taxpayers. On a present value basis, using a discount rate of 6 percent, the tax benefits offered by the OZ program would save her $996. Under certain conditions, new investments in Opportunity Zones may be eligible for preferential tax treatment. State and local governments that provide incentives conforming to the federal program will face additional losses. QOZ’s allow you to defer your capital gains taxes by investing in a Qualified Opportunity Zone Fund. Our concern is that prices may increase to levels that are difficult to justify, even incorporating the potential future value of the tax benefits. My assumption was that it … QOFs are required to hold 90 percent of their assets in qualified OZ property. For example, Colorado’s economic development agency created a statewide metric to evaluate need and investment potential and convened stakeholder groups consisting of local officials, community organizations, and private investors as part of the selection process. Created as part of the federal Tax Cuts and Jobs Act of 2017 (TCJA), the Opportunity Zone (OZ) program is a place-based economic development tax incentive intended to increase private investment in low-income communities. What We Do + Investment Sales. The initial OZ designations will remain in place through at least 2026. 1. Even though New York State and City investors are likely to be among the most significant beneficiaries of the OZ program, the State has yet to pass legislation that would allow the public to understand the cost of the OZ program to State and local governments or the information needed to evaluate whether it makes sense for to conform with the federal program. The first is … New York State lawmakers can improve the New York’s Opportunity Zone implementation through two potential approaches: taking steps to increase transparency; and exploring decoupling in part or in full. The Exact Steps I Followed to Make $1,500+ of Passive Income Every Month, The Sexiest Job of the 21st Century Isn’t “Sexy” Anymore, The Future is More Terrifying Than We Can Imagine, Chris Hemsworth Is Exactly What’s Wrong With The Fitness Industry. Federal Opportunity Zones and New York’s Accrual Rule by Joseph N. Endres and Timothy P. Noonan There’s been a good amount of buzz surrounding the qualified Opportunity Zones (QOZs) that were created by the Tax Cuts and Jobs Act. The Opportunity Zone Program will be a complementary initiative that helps to attract additional private investment to the hundreds of communities that Governor Cuomo has recommended for this designation.” The federal program establishes Opportunity Zones, or low-income census tracts, to boost private investment in under-served urban and rural communities. The State’s decision to conform to the federal OZ program without imposing additional transparency or accountability measures adds to this trend. For developers and business owners, the program promises to increase the availability of equity capital. Insights. Qualified Opportunity Zones in New York Find County and Census Track Numbers below. Without the OZ program, she would have owed $1,823 in federal, state, and local taxes on the sale of her original investment in 2019. In June 2018, the IRS released a map of all designated opportunity zone locations nationwide, but the map is not terribly useful (to the point of being inscrutable) in dense urban areas where one side of the street may be in a zone, while the other side of the street is not. Given this decision, State lawmakers can take steps to ensure that the OZ program is well targeted and that the public can evaluate its implementation and impact. For individual taxpayers living in New York City, the top marginal tax rate on gains, combining federal, state, and local taxes, is 36.48 percent. Under the program, individual and corporate taxpayers can defer the taxes due on realized capital gains by investing in Qualified Opportunity Funds, which are required to invest in projects, businesses, and real estate in census tracts designated by states as Opportunity Zones.1 Depending on the duration of their investment, taxpayers are able to defer and potentially reduce taxes on their original gains. a program of nyserda. To learn more about the opportunity zones program please click here. At current tax rates the 2019 fiscal impact of that level of investment could be as much as $63 million on New York State and $31 million on New York City. Citizens Budget Commission estimated that the Opportunity Zone tax break is costing New York City and State up to $31 million and $63 million respectively each year, with these numbers expected to rise to $140 million and $284 million in 2029. Vacant land represents only a 5.7% of Opportunity Zone parcels in NYC. Hickenlooper Announces Opportunity Zone Nominations” (press release, March 23, 2018). After informal consultations with the Regional Economic Development Councils (REDCs) and local officials, ESD and the Governor selected 514 tracts. This “layering” of incentives is a common and problematic feature of New York State and local economic development policies.12 The NMTC and Low-Income Housing Tax Credit (LIHTC) programs allow developers to sell federal tax credits to investors in exchange for equity investments that effectively act like capital grants. Like what you're reading? Is the Opportunity Zone the biggest thing to hit real estate “maybe ever,” as Bruce Stachenfeld told Commercial Observer in September? JCT’s estimated $2 billion federal fiscal impact implies taxpayers will defer taxation on $9.2 billion in capital gains each year based on current federal tax rates for corporations and individuals. Properties + … The gains on the second investment are excluded from taxation. NYC dominates list of high-growth Opportunity Zones: report. In the hypothetical example below, an individual New York City resident sells an asset in 2019 and realizes a capital gain of $5,000. Across the country, there are 8,700 certified Opportunity Zones and of those the U.S. Treasury identified more than 2,000 low-income census tracts in New York State as potentially eligible for the Opportunity Zone designation. These neighborhoods will remain eligible for new OZ investment even though their demographics no longer meet the criteria for the program. The opportunity zones south of Central Park are: It will be interesting to watch these neighborhoods evolve once the Opportunity Zone capital is deployed. Of these 496 were qualified low-income tracts and 17 were non-low-income contiguous tracts. Big Stock Windfall? New York State businesses also represented about 8 percent of business income taxes collected at the federal level. Be part of the change. New Rule Defers Taxes With Real Estate Investment, The Wall Street Journal (10/2/18) - includes quotes from Bruce Stachenfeld and tax chair, Jessica Millett. Explore, If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. Learn more, Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. There is no requirement that New York State conform to the tax benefits offered by the OZ program. And when it comes to commercial real estate investment and development, Opportunity Zones are making that sentiment ring truer than ever before. IPAForum 2019: Qualified Opportunity Zone Funds February 12-13, 2019 Dallas, TX Ritz-Carlton Hotel. Investors in the funds can defer tax gains in the funds until December 2026 to incentivize investors to re-invest their unrealized capital gains back into the funds. Maximum benefits are available to investors who invest in Opportunity Funds by the end of 2019 and hold their investments for a minimum of 10 years.2 (See the text box for a description of how the tax benefits work for a typical investor.). For cities and states, the program presents an opportunity to attract additional private investment to low-income or high poverty neighborhoods. This is problematic for two reasons. NYC Opportunity Zones: Existing Building Parcels. Opportunity Zones Map. Analysts estimate that taxpayers have up to $6 trillion in unrealized capital gains nationally.6 Unlike other federal community development programs (such as New Markets Tax Credit), TCJA did not cap the amount of gains taxpayers could invest in Opportunity Funds or the amount that funds could invest in projects. Governors could also designate up to 5 percent of their states’ OZs from a list of tracts that were ineligible based on criteria but that were contiguous with eligible low-income tracts and had a median family income that was no more than 125 percent of the adjacent eligible tract. 240 West 35th Street, Suite 302 New York City also taxes gains earned by some pass-through entities through the Unincorporated Business Tax. In New York, Governor Andrew Cuomo tasked Empire State Development Corporation (ESD), the state’s economic development entity, and New York State Homes and Community Renewal, its housing agency, with designating OZs. Conclusions . To be eligible a census tract must have a poverty rate greater than or equal to 20 percent, or have a median family income less than 80 percent of the greater of its statewide median or the median for its metropolitan area.3 These measures were based on data from the 2011-2015 American Community Survey (ACS) Five-Year Estimates. The Opportunity Zones in NYC With Breakout Potential. Taxpayers are taxed on gains at the same rate as earned income – an 8.8 percent top marginal rate at the state level and an additional 3.876 percent top rate for New York City residents. By Chava Gourarie November 6, 2019 12:21 pm reprints. It could also allow state and local governments to reduce the value of subsidies that they would provide through other programs. New York City had less than 3 percent of the national population, but individual taxpayers realized $49.2 billion in gains, more than 7 percent of all gains nationwide. Of all the ways President Trump’s 2017 tax cut has enriched the wealthy at the expense of the public interest, perhaps the most outrageous is the black comedy of “opportunity zones.” back to top . Some of this forgone tax revenue may be deferred to 2026, at which point governments may see a one-time boost in tax receipts. Continue Reading Opportunity Zone Guidance Released with Some Answers and Some Outstanding Questions. Making the grade in opportunity zones. QOFs self-certify that they are qualified and in compliance with the 90 percent investment test by attaching a form to their federal income tax returns. Opportunity Zone Investing. Some states selected opportunity zones using a transparent, data-driven process that invited comment and public feedback. Click on the marker to see more information. Requiring funds to report on the investments made by New York taxpayers who would otherwise be subject to New York state and local taxation is necessary to understand the fiscal impacts of the OZ program on personal income and business income revenue. The OZ program is designed to encourage individuals and corporations to invest in real estate projects and businesses in low-income communities. By contrast, 99 percent of high-poverty/low-income tracts still qualify. In New York developers active in OZs can receive tax breaks from local Industrial Development Agencies, tax credits through the Excelsior program, and grants from REDCs. Currently there is no commitment from federal officials to track, monitor, or evaluate the Opportunity Zone program. Learn more about investing in any of the Opportunity Zones in New York shown below. Second, the OZ boundaries will not adjust to account for neighborhood change and development over time. If this occurs, the fiscal impacts on New York State and New York City could increase dramatically to $284 million and $140 million in 2029, respectively. Investors have to hold their investments in a fund for 7 years to get the 15 percent reduction of the deferred gain, and they have to hold for 10 years to get the full exclusion from taxes on appreciated value. Unlike the federal government, New York does not tax capital gains at a preferential rate. The JCT’s initial cost estimate of the OZ program for federal tax years 2018 to 2027 assumed $12.4 billion in lost revenue through 2025, which would be offset by a $10.8 billion increase in revenue in 2026 and 2027 as taxpayers make deferred tax payments. Zone Designations Remain Fixed Over Time. Since this designation was announced, development sites in opportunity zones nationwide have been acquired rapidly and in some places, prices have increased by 80% just in the last year. blueprint for economic development reform, Opportunity Zones In New York State and City, https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions, https://eig.org/wp-content/uploads/2018/01/Tax-Benefits-of-Investing-in-Opportunity-Zones.pdf, https://www.cdfifund.gov/Documents/NMTC%20Fact%20Sheet_Jan2018.pdf, https://choosecolorado.com/gov-hickenlooper-announces-opportunity-zone-nominations, https://eig.org/news/opportunity-zones-tapping-6-trillion-market, https://www.novoco.com/resource-centers/opportunity-zone-resource-center/opportunity-funds-listing, https://www.jct.gov/publications.html?func=download&id=5148&chk=5148&no_html=1, https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed, https://www.tax.ny.gov/pdf/stats/stat_pit/pit/preliminary-report-tcja-2017.pdf, https://www.bisnow.com/new-york/news/opportunity-zones/oz-follow-97841, https://cbcny.org/research/bigger-not-better, https://www.novoco.com/periodicals/articles/impact-reporting-and-opportunity-zones-incentive, https://www.housingfinance.com/news/industry-has-role-to-play-in-oz-reporting, https://static1.squarespace.com/static/5c5484d70b77bd4a9a0e8c34/t/5c61f96ca4222f25386e275a/1549924718674/Opportunity+Zones+Reporting+Framework+-+February+2019.pdf, https://cbcny.org/research/10-billion-reasons-rethink-economic-development-new-york, https://www.tax.ny.gov/pdf/memos/income/m18-6i.pdf. In addition, the State could require funds to report annually on the value of gains invested by New York State taxpayers in qualified opportunity funds. Albany, NY 12207 Compound is reimagining the way the world invests in urban…, Co-Founder and Head of Global Business Development at Compound Asset Management. Opportunity Zones provide a tax incentive for investors to re-invest their unrealized capital gains into dedicated Opportunity Funds. These criteria are derived from another federal place-based community development program, the New Markets Tax Credit, in which the federal government allocates tax credits to community development entities that syndicate the credits and invest the proceeds in businesses and real estate projects in low-income communities. Contact us today for more info. There are several steps the legislature can take to decouple partially or fully from the federal OZ program. A third option is to decouple fully from the federal program. Mr. Trump’s order seeks to encourage development in the zones and reassure investors that they are viable places for investment. In the 2015 ACS, the statewide poverty rate in New York was 15.7 percent, and 80 percent of the statewide median income was $57,530. Economic Innovation Group, “Opportunity Zones: Tapping into a $6 Trillion Market” (March 21, 2018). This would minimize the direct impact on state and local tax revenue from the program. “Everyone is talking about it, but nobody is doing it.” These losses will occur only as Opportunity Funds sell assets and investors realize gains that would otherwise be subject to taxation. At the federal level, long-term capital gains are taxed at lower rates than ordinary income. First, eligibility was based on data from the 2011-2015 American Community Survey, which was already outdated at the time of selection. The short answer is yes—the longer answer is definitely in Brooklyn. Income earned by S-corps is subject to the General Corporation Tax. On the contrary, if the OZ investments flow to projects that would have happened anyway, the exclusion of future gains from taxation means that New York will forgo future revenue that it likely would have been able to collect. Jamison Dague, Tammy Gamerman, and Elizabeth Lynam, “Bigger Not Better: New York’s Expanding Economic Development Programs” Citizens Budget Commission (February 18, 2015), Mark O’Meara, “Impact Reporting and the Opportunity Zones Incentive,”, John W. Gahan III, “Industry Has Role to Play in OZ Reporting,”. New York has decided to conform to the federal program; capital gains deferred or excluded from taxation at the federal level will be similarly deferred or excluded from state and local taxes. Join Our Email List. At Compound, we’re watching prices in opportunity zones carefully. New York State is participating in the new Opportunity Zone community development program, offered through the Tax Cuts and Job Acts of 2017. Riley Edwards, “10 Billion Reasons to Rethink Economic Development in New York,” Citizens Budget Commission (February 11, 2019). 518-429-2959. As part of the December 2017 Tax Cuts and Jobs Act, a generous new tax break was created, designed to lure investment into struggling neighborhoods known as “Opportunity Zones.” This law was meant to catalyze investment in depressed communities in need of capital improvement.