Each Governor is authorized to designate 25% of the eligible census tracts1 as Opportunity Zones in their state. In Minnesota, this means the Governor can designate 1282 census tracts as Opportunity Zones out of an eligible 509 low-income census tracts. The Governor also has the option of including up to 5% of census tracts that are contiguous with an eligible census tract but are not themselves low-income tracts3. In Minnesota, the Governor could designate up to 74 tracts as contiguous out of the state's 128 designated Opportunity Zones.
1According to 26 U.C. Code § 1400Z–1, a population census tract is eligible for designation as an Opportunity Zone if it satisfies the definition of "low-income community" (LIC) in § 45D(e) of the Code.
2According to 26 CFR 601.601, Rev. Proc 2018-16.09: If the number of LICs in a State is not evenly divisible by 4, the 25 percent limitation is determined by rounding the fractional quotient up to the next whole number.
3Under 26 U.C. Code § 1400Z–1(e) of the Code, a tract that is not an LIC is eligible for designation if both of the following conditions are met: (1) The non-LIC tract is contiguous with an LIC that is designated as a QOZ (the contiguous LIC QOZ need not be in the same State.); and (2) The median family income of the non-LIC tract does not exceed 125 percent of the median family income of that contiguous LIC QOZ.
4According 26 CFR 601.601, Rev. Proc 2018-16.09(3): If the number of designated QOZs in a State is not evenly divisible by 20, the 5 percent limitation is determined by rounding the fractional quotient up to the next whole number.
What are Opportunity Funds?
Opportunity Funds are a new class of private sector investment vehicles authorized to aggregate and deploy private investment into Opportunity Zones.
Opportunity Funds allow U.S. investors holding unrealized gains in stocks and mutual funds to pool their resources in projects located in Opportunity Zones, which will be invested in rebuilding low-income communities.
Opportunity Funds pool investments in Opportunity Zones.
U.S. investors are eligible to receive:
A temporary tax deferral for capital gains invested in an Opportunity Fund.
A step-up in basis for capital gains reinvested in an Opportunity Fund.
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund if the investment is held for at least 10 years.
U.S. Treasury Department released its first guidance for the Opportunity Zones tax incentive on October 19. That guidance includes 74 pages of proposed regulations, a five page revenue ruling, an updated Q&A document and both a draft of Form 8996 for qualified opportunity funds and instructions for that form. The U.S. Treasury Department also alerted the public that we should expect some additional guidance for Opportunity Zones later this year.
Taxpayers may submit comments electronically via the Federal Rulemaking Portal (IRS REG-115420-18) before January 10, 2019. Additionally, a public hearing about the proposed rules has been scheduled for January 10, 2019.
In accordance with H.R.1 Tax Cut and Jobs Act of 2017, Governor Dayton nominated 128 census tracts for designation as a qualified opportunity zone. On May 18, 2018, the U.S. Department of Treasury certified and formally designated these census tracts as qualified Opportunity Zones.
Stakeholders with additional questions about this process can contact Darielle Dannen, government relations director at DEED, or Ryan Baumtrog, Assistant Commissioner of Policy and Community Development at Minnesota Housing.