Last December President Trump signed the Tax Cuts and Jobs Act in to law. It was the first major reform of the U.S. tax code in 31 years. This historic legislation doubles the standard deduction and expands the child tax credit, as well as provides tax relief for small businesses all across the country.
Thanks to the Tax Cuts and Jobs Act more small businesses are saying "now is a good time to expand" than ever before. In addition we are seeing record low unemployment rates and huge GDP growth. For the first time since 2000, job openings outnumber the unemployed with 6.7 million job openings and just 6.3 million people unemployed.
In North Carolina the average family of four received an $1,803 tax cut thanks to the Tax Cuts and Jobs Act. Businesses like AT&T, Lowes Home Improvement, Wells Fargo, and Blue Cross Blue Shield passed on their savings to their employees and their customers.
However, while unemployment numbers and bonuses made headlines this year, these aren’t the only good things coming to communities in the Tenth District thanks to tax reform. Opportunity Zones are probably the least talked about but have the most potential in some of our most impoverished communities.
What is An Opportunity Zone?
Opportunity Zones were an idea developed forty years ago by former U.S. Congressman Jack Kemp as a way to encourage economic development in impoverished urban areas. The Opportunity Zones found in today’s Tax Cuts and Jobs Act expands on this idea to include all communities with a poverty rate of 20% or higher OR a median household income that is less than 80% of the surrounding area. Click here to learn more about Opportunity Zones courtesy of the Economic Innovation Group. Click here for an interactive map of Opportunity Zones located in the United States from the U.S. Department of Treasury.
What Do These Areas Look Like?
The designated Opportunity Zones across the 50 states and D.C. have an average poverty rate of 31%, which is much higher than the 20% eligibility threshold. The average median family income is also lower than the 80% threshold required with a median equal to only 59% of the surrounding area.
How Does An Opportunity Zone Work?
Opportunity Zones are designated by census tracts and state and local governments. Each state is allowed to designate up to 25% of its total low-income census tracts as zone candidates. North Carolina, for example, could select 252 census tracts as an Opportunity Zone. The Opportunity Zone provides a tax incentive for investors to re-invest their unrealized capital gains into “Opportunity Funds.” These funds are dedicated to investing in small businesses and economic development in the Opportunity Zones.
What Is An Opportunity Fund?
Opportunity funds can be created by a wide variety of investors, including large banks, venture capital groups, and regional economic development organizations. They are built to be responsive to the community’s needs, allowing for investment in operating businesses, equipment, and real property. To create a fund, an eligible taxpayer can self-certify by filing a simple form with their annual federal income tax return.
Federal Tax Incentives for Investing in Opportunity Zones
There is a temporary tax deferral for capital gains reinvested in an Opportunity Fund and a step up in basis for capital gains reinvested in an Opportunity Fund. An investor who retains an investment for seven years only pays 85% of the capital gains taxes that would have been due at the time of the original investment and he or she is permanently excluded from taxable income of capital gains derived from Opportunity Fund if it’s held for 10 years.
The Potential Found In Opportunity Zones
Opportunity Zones aren’t just problem areas with high unemployment and low economic development, instead they are areas with a huge potential for growth. In the U.S. opportunity zones are already home to 24 million jobs and 1.6 million businesses. In North Carolina, Opportunity Zones were selected by prioritizing local recommendations and developmental goals as well as state industrial site development initiatives. In North Carolina alone, there are already over 50,000 business establishments located in Opportunity Zones. Click here to learn more about Opportunity Zones in North Carolina and their potential for economic growth.
What This Means For NC-10
The Tenth District has the third highest number of Opportunity Zones in the state. Many of these zones are located in areas with a lot of potential for growth. Below they are listed by county as well as some of the development projects that may benefit from investment thanks to the Opportunity Zones.
Buncombe County has 5 designated Opportunity Zones. Some of the zones are located in more residential areas, which could enhance affordable housing developments. In addition the River Arts District and an area bordering the South Slope were also included within the Opportunity Zones. Click here to learn more from the Buncombe County Economic Development Commission.
Catawba County has 2 designated Opportunity Zones. One is located in a more residential area that is need of affordable housing, while the other has one designated industrial park in it that has not yet been developed. Click here to learn more from the Catawba County Economic Development Commission.
Lincoln County has 1 designated Opportunity Zone. The one zone in Lincoln County encompasses the Lincoln County Industrial Park and includes the Hwy 321/Bus. 321 exit. Also included, is the data center site off Startown Road. Click here to learn more from the Lincoln County Economic Development Association.
Gaston County has 9 designated Opportunity Zones. All of central Gastonia is included, which encompasses the FUSE district. The zone in Lowell and Cramerton, includes the proposed Lineberger Connector. Southern Bessemer City also has a zone that includes their business park. Click here to learn more from Gaston County.
Cleveland County has 2 designated Opportunity Zones. One Zone is located in Kings Mountain encompassing all of the industrial area and interstate exchanges between I-85 and downtown. In Shelby the zone includes the east side of downtown including the court square. Click here to learn more from the Cleveland County Economic Development Partnership.
Rutherford County has 3 designated Opportunity Zones. Cliffside, Henrietta and Caroleen were included and have several old mills that are available for redevelopment. Isothermal Community College and the commercial area around the mall in Forest City are also included which is good for entrepreneurial investment. Click here to learn more from the Rutherford County Economic Development Commission.
Polk County has 1 designated Opportunity Zone. Click here to learn more from Polk County.