Opportunity Zones in Texas: Promise and Peril

Introduction

While the passage of the Tax Cuts and Jobs Act of 2017 garnered much media discussion and analysis, little was initially mentioned about a new community development tool tucked into the bill’s pages. Called the Opportunity Zones program, this tool is a private equity tax incentive program designed to spur investment in the country’s low-income urban and rural communities. Investors can receive a series of tax benefits through qualified Opportunity Funds (O-Funds), which are investment vehicles that deploy capital to designated Opportunity Zones (OZs). There is some tax benefit for investments held a minimum of five years, but investors get the most benefit from investments held at least 10 years, including a 15 percent step-up in basis and a permanent exclusion from taxable income of capital gains (for more detailed investment information, see this fact sheet from Economic Innovation Group). The goal is to incentivize investors to hold funds in these vehicles at least 10 years to give capital time to work in communities.

Since Opportunity Zones became law on Dec. 22, 2017, there have been many ongoing questions about this new incentivized program. Community groups, private investors and government agencies alike have been scrambling to understand the process of raising and expending these funds, as well as potential best practices. This brief article seeks to provide some background information and explain where Texas currently stands in the process.

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