Sometimes opportunity knocks in an unexpected place, or at least that’s what the government hopes investors will see in its new Opportunity Zones program.
The program, which aims to spur development in underdeveloped or neglected areas, was created as part of the federal Tax Cuts and Job Acts in 2017.
But what does it mean to live in an opportunity zone, and how can a community take advantage of the new funding it may bring?
Here’s everything you need to know about the new program and what it means for the city.
What is an Opportunity Zone?
An opportunity zone is an underdeveloped or neglected area that could benefit from investment. Massachusetts’ selections are scattered throughout the state and, as shown on a map, encompass parts of communities.
Of the 138 federally approved areas in Massachusetts, 32 are within the 10 cities or towns with the lowest median family income in the state.
Forty-eight percent of the tracts are in “gateway cities,” which are municipalities with populations of 35,000 to 250,000, as well as median household incomes and education levels below the average in Massachusetts, according to the state. “Rural communities make up 18 percent of the communities with designated tracts.”
Boston has 13 Opportunity Zones, Quincy and Somerville each have two, and Cambridge has one.
Where are Boston’s Opportunity Zones?
Boston opportunity zones
Opportunity Zones and funding
“The statute provides federal tax benefits to investors who realize capital gains and invest them within Opportunity Zones through Opportunity Funds,” according to the state. These incentives accumulate.
There’s a temporary deferral — an investor can defer capital gains on income reinvested into Opportunity Funds. This gain must be recognized either when the investor pulls out of the fund or by Dec. 31, 2026, whichever comes first.
If an investor keeps his or her money in the Opportunity Fund for five years, the capital gains tax owed drops by 10 percent. If the investor stays in for seven years, this tax reduction becomes 15 percent.
If an investor keeps his or her money in the fund for 10 years, any gains are tax exempt.
How do Opportunity Zones tap into Opportunity Funds?
The key to getting funding in an Opportunity Zone is attracting an investor, according to the state. Communities should figure out how to do that and what types of investment from which they would benefit.
“In order to successfully attract Opportunity Fund investment, the Baker administration recommends that communities ensure that local permitting and zoning is conducive to the kinds of investments you aim to attract,” the state website says. “Additionally, your community may want to think about how to market the Opportunity Zone to private investors both within and beyond Massachusetts.”