4. Opportunity zones: To do good or do well?
A new policy designed to attract investment to low income communities may not benefit rural areas and the most impoverished communities, Axios' Stef Kight reports.
Between the lines: The majority of what are being called "opportunity zones" — economically distressed census tracts nominated by governors to receive special corporate tax breaks — lie within large metro areas. While most have low median income projections, quite a few are in relatively prosperous areas of major cities like Washington, D.C. and San Francisco, according to data collected by Develop LLC.
Dion's thought bubble: The opportunity zones could be boon for low-income communities, but they may really be a once-in-a-lifetime opportunity for the wealthy.
Investors can use money from large capital gains like the sale of a business or a major stock position that they would have had to pay taxes on and instead invest in projects, which are typically real estate, in the approved zones.
If they remain invested for 5 years, investors can exclude 10% of the gain from taxation. If they hold for 7 years, 15% is excluded. And if they remain invested for at least 10 years, any gains from their investment would be tax-free, CNBC notes.
- "You're basically earning a return on the taxes that you owe [in 2019] for 7 years and then you pay less in taxes than you would have to start with," Michael Crook, head of Americas investment strategy at UBS, told Axios in January. "So you can see why people would want to do this."
By the numbers: Only 3% of opportunity zones have a projected median household income of $75,000 or more, but certain well-known metro areas have a much larger concentration of these communities.
- There also are equally competitive small communities inside struggling metro areas, such as St. Louis, Detroit or Cleveland, Steve Glickman, founder & CEO of Develop LLC, told Axios.
What to watch: Investors looking to take advantage of the new tax policy are faced with deciding whether to invest in communities where there is the most need or invest in impoverished pockets of areas that are already doing relatively well.