
The Rural Opportunity Zones program aims to boost investment in distressed rural areas through tax incentives and qualified funds.
Renewed optimism for opportunity zones
The opportunity zone program, established under the Tax Cuts and Jobs Act, was designed to stimulate investment in economically distressed areas through tax incentives.
At last week’s Real Estate Roundtable, industry leaders and stakeholders expressed renewed optimism for the expansion and improvement of the opportunity zone program, given the recent shifts in the Senate and the White House.
Some speakers and congressional staffers at the two-day “state of the industry” meeting even suggested that future opportunity zone legislation might include the introduction of rural opportunity zones and qualified rural opportunity funds.
Key players and background on rural opportunity zones
This thought may have legs as Representative Jason Smith (R-MO), the new Chairman of the Committee on Ways and Means, is a strong advocate for “the rights and values of rural Missourians.” The Committee on Ways and Means, the oldest tax-writing body in the U.S. House of Representatives, is responsible for fiscal legislation — including taxes, tariffs, and social service programs.
Rural opportunity zones were conceptualized in the Rural Opportunity Zone and Investment Act, introduced by Representative A. Drew Ferguson IV (R-GA) in June 2023. Representative Ferguson and his bill supporters hoped to drive economic growth and improve the quality of life in rural communities by creating rural opportunity zones and establishing qualified rural opportunity funds.
The proposed legislation was referred to the Committee on Ways and Means, but did not progress further.
Provisions of the Rural Opportunity Zone and Investment Act
Under the proposed Rural Opportunity Zone and Investment Act:
- A rural opportunity zone was defined as any population census tract located in a rural county that is in persistent poverty. A rural county was one where more than 50% of the census blocks are rural.
- A qualified rural opportunity fund was an investment vehicle organized as a corporation or partnership for the purpose of investing in qualified rural opportunity zone property. The funds would need to hold at least 90% of their assets in qualified rural opportunity zone property.
- Capital gains from the sale or exchange of property would be excluded from gross income if the gains were invested in a qualified rural opportunity fund within 180 days of the sale or exchange. The deferral of gain would apply until the investment was sold or exchanged, or until December 31, 2032, whichever came first. Should aspects of this bill get updated in the future, the deferral date would need to be adjusted to provide ample time for the 5-year and 7-year investment incentives.
- Investments held for at least five years would see a 10% increase in the basis of the investment, and those held for at least seven years would see an additional 5% increase. For investments held for at least ten years, the basis of the property would be equal to its fair market value on the date of sale or exchange.
Potential legislative changes for opportunity zones
Many in the industry are advocating for the opportunity zone program to become a permanent part of the tax code, citing its positive economic and social impacts. Congressional insiders believe that opportunity zones are likely to be included in a new tax package, with the potential for short-term extensions, a longer-term renewal, or even permanent inclusion in the tax code.
Whether concepts from the Rural Opportunity Zone and Investment Act are incorporated into future legislation remains uncertain.
How CLA’s tax professionals can help
At CLA, our real estate professionals are committed to helping you navigate the regulatory requirements of the opportunity zone program. Contact us today for assistance with tax compliance or to gain insights into the potential renewal or enhancement of the opportunity zone program.
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