Opportunity Zone Backers See Trump Win Boosting Extension Odds

Investors and tax practitioners see President-elect Donald Trump’s return to the White House and a Republican-led Congress as an opening to boost the opportunity zone tax incentive that aims to reward investment in underserved communities.

Jake Murphy, deputy communications director to Sen. Tim Scott (R-S.C.), told Bloomberg Tax after Trump’s Nov. 5 win that Scott, who co-authored the opportunity zone program included in the 2017 federal tax law, “looks forward” to working with Trump and other Republican lawmakers to “broaden and extend” the tax break rather than letting it expire in 2026 as scheduled.

Opportunity zone proponents have been asking for a two-year extension of the incentive to recover time lost to “regulatory delays” and the Covid-19 pandemic. Investments through the program reached $84.7 billion as of 2022, according to a July report by the Joint Committee on Taxation.

Others argue the program should expire, citing a lack of data showing its impact, as well as criticisms that it has primarily benefited wealthy investors and directed investments toward already attractive areas. However, both sides largely agree that any new bill should restore transparency requirements removed from the 2017 law, prioritize investment in underserved rural areas, and reassess the census tracts where the tax break will be available.

“If it’s going to be renewed, rather than eliminating opportunity zones altogether, I’d want to see a restructuring of how the census tracts are designated and which tracts would qualify for the tax break along with an increase in transparency around the program,” Anya Gizis, research analyst at Good Jobs First, a fiscal watchdog group that’s opposed opportunity zones, said in an interview.

Supporters Say Extension Would Boost Investment

Opportunity zone funds had raised $39.5 billion through Sept. 30, according to Novogradac, which tracks over 1,400 funds. But once-rapid investment growth began to level off in December 2023.

“There’s a lot of uncertainty about tax legislation moving forward and the future of the program, which is holding back new opportunity zone investments, even though the program is still around,” Jimmy Atkinson, founder of OpportunityZones.com, said at a Nov. 6 event in Washington hosted by the accounting firm Novogradac.

Atkinson presented data showing that 34% of investors, developers, and other stakeholders cited uncertainty about tax legislation as the main reason they hesitated to invest in opportunity zones, while 28% noted the 2026 capital gains tax deferral deadline. Others pointed to a lack of capital gains, the 10-year holding period required to get the maximum tax benefit, and concerns about the real estate market.

“The first two get solved with an extension,” he said.

Shafron “Shay” Hawkins, president of the Opportunity Funds Association and a former policy adviser to Scott, suggested another way to boost investment is through “feeder funds,” allowing one opportunity fund to invest in others.

“There is a consistent perception amongst Republicans representing rural areas that opportunity zones were not designed to favor them, and the data that’s coming in, or where things are invested, actually reinforces this view,” he said at the panel. “So to have feeder funds that can do smaller impact-oriented, often operating company-focused investments would do a ton to assuage these concerns of people who are going to be our allies in getting the extension.”

Changes to the opportunity zone program could reverberate through related state-level tax incentives, although states have varied approaches to opportunity zones. California, for instance, does not offer any of the benefits at the state level. New York halted certain benefits in 2021, though lawmakers have failed to fully decouple the state from the full capital gains exemption for investments held for at least 10 years. Similar legislation in other states, like Oregon, has also stalled.

Jason Watkins, a Novogradac partner, said it’s too early to predict how states might respond to an extension. “Decoupling puts states at a competitive disadvantage in attracting investment compared to those that conform to the opportunity zone incentive,” he said.

Working Group Suggests Changes for New Bill

In an Oct. 21 letter, Novogradac’s opportunity zone working group recommended a bill with reporting and transparency requirements. The letter was addressed to Rep. Mike Kelly (R-Pa.), who introduced legislation (H.R. 5761) in 2023, allowing the Treasury Department to gather data on investment locations, types of projects, and job creation.

The working group proposed adding incentives for what it calls “impact investments” and suggested a bigger tax break—up to 100% of the original investment—based on a project’s benefit to its local community.

“The OZ incentive is a relatively shallow incentive that on its own, may not be sufficient to persuade private capital to invest in many impact investments such as affordable housing, community centers, job-creating operating businesses and infrastructure projects,” Watkins wrote in the letter.

The letter also laid out the challenges rural areas face in attracting investment and backed a bill (H.R. 3906) to expand rural opportunity zones, which has been stalled in the House Ways and Means Committee since June 7, 2023.

The group also proposed legislative changes to improve how opportunity zones interact with other incentives—like the new markets tax credit, historic tax credit, and low-income housing tax credit— ”which are even more effective” when combined.