The framework is expected to release billions of dollars accumulated since the introduction of the Opportunity Zones program along with the Tax Cuts and Jobs Act of late 2017, possibly overshadowing existing incentive programs and saving investors become bundles in the process.
The Goldman Sachs Group, which two decades ago called for a unit to fund projects in deprived neighborhoods in greater New York, is one of the investor groups hoping to benefit from the new tax incentives. The company began making money last year following the passing of the tax law last year.
The public now has 60 days to comment on the rules that the Ministry of Finance expects for next year.
The Trump Administration Expects The New Tax Policy Will Mobilize $ 1
"This incentive will boost economic revival and promote sustainable economic growth, which is a key objective of the Tax Cuts and Jobs Act," said Finance Minister Steven Mnuchin in a statement.
Friday's proposed regulations are intended to help clarify for investors what capital gains are eligible for a postponement, which taxpayers and investments are eligible, and other guidelines. Investors have taken the side railing and are waiting for more information from the Ministry of Finance before they make the leap to new deals in certain zones.
"It turns out investors are very tax sensitive," says Steve Glickman, a former Obama administration official who designed the program and launched a consulting firm last month to channel capital into projects in eligible zones. "And there was a tremendous reaction to the legislation, much more than I thought."
The Republican-backed tax cut last year allows investors to postpone taxes on capital gains if they're reinvested in a real estate project or business in one of the nearly 9,000 eligible census areas, and then pay at a reduced rate, if the investment is held for certain periods of time. Gains on investments in the opportunity funds for more than 10 years are untaxed, with the exemption expected to cost $ 7.7 billion by 2022, according to the Joint Committee on Taxes.
This will make investments with a lower expected pre-tax return – in the inner cities of depressed secondary cities such as Louisville or Cleveland – more competitive than in the booming metropolises. Although the program currently only lasts until 2026, legislation has already been introduced to expand it.
While opportunity zones have retained their designation for a decade, investors may retain their investments under the proposed regulation if they hold them in a qualifying fund until 2047 without losing any tax benefits. The US Treasury Department said there would be more guidance before the end of the year.
Along with Goldman, companies such as DC-based Fundrise and hedge fund EJF Capital have raised $ 500 million from wealthy individuals ready to use once the rules are set to take full advantage of the tax cut. So far, big institutional investors have been holding back, but that may change now that Treasury has set the rules for the street.
Goldman could not be reached immediately for comment.
The program has been criticized by community organizations as many of the designated zones are in areas that are already developing rapidly, leading to the concern that the additional capital will only burden investors on projects they would have funded anyway.
At present, there is no central register for funds that qualify under the rules of the program, as reporting requirements no longer existed during the process of adopting the Comprehensive Tax Reform Package.
Glickman says high-yield projects will go down Investors will then move to more marginal areas, especially if local politicians and chambers of commerce can make attractive offers to fund managers who distribute investor dollars.
"You will certainly see many low-hanging fruits in the first phase of the program," says Glickman. "Well, the stuff that turned out to be right, if you're a smart developer, of course, you'll use the program."
Aside from excluding so-called "sinful" companies, such as casinos, the rules allow almost any type of investment, from tech startups to multi-family dwellings, to affordable tax treatment without restrictions on affordability or capital. Other "enterprise zone" programs, such as the New Markets Tax Credit, have an annual ceiling and have shown little evidence of the impact on poverty or income in their targeted areas.
"The argument was that these programs failed in part The capital was too diffused to make an impact in a particular location and, in addition, it had too many rules and regulations, and that should be the opposite," says Rachel Reilly, Director Impact Investing at the Non-Profit Organization Developer Enterprise Community Partner. "Enterprise is trying to figure out how to capture some of this capital for community development space."