Wizard of OZ
The Future. The federal government is full speed ahead on so-called Opportunity Zones. They will have a huge impact on artists, creators, and entrepreneurs. Expect them to spark innovation hubs in unexpected places.
What are Opportunity Zones?
OZs are a brand new tax incentive created by Trump’s 2017 tax reform bill.
They give tax benefits to investors in certain “economically distressed” areas across the country. Their purpose is to make these areas less distressed.
Roughly 12% of the neighborhoods (AKA “census areas”) of the country have been designated OZs.
These are generally low income, high minority areas.
In Los Angeles, for example, several neighborhoods in the area-formerly-known-as-South-Central are OZs. But then again, so are some areas in Culver City and Los Feliz.
In the Bay, it looks like most of the actual Bay itself is an OZ (who can explain this one?) and so is a lot of Oakland.
Parts of Alaska qualify. So does basically the entire island of Puerto Rico.
Since the 2017 announcement of OZs, their property value has risen 20%.
What can you do in them?
At first, it looked like OZs were for real estate investment only. But then the IRS expanded the definition to include virtually any business investment, so long as it meets one of three criteria.
- At least 50% of the hours the employees work are spent in the OZ.
- Half the company’s services are within the OZ.
- If the management is based in the OZ.
In general, the government is super committed to making the OZ program work, so they’re being quite flexible about rules and definitions.
The opportunity for creation
In order to invest in an OZ, an investor must be part of a Qualified Opportunity Zone Investment Fund.
These are popping up everywhere. Just google your city and “opportunity investment fund.”
Money is going to be flooding into these areas, looking for a home.
One thing about creativity is that it’s portable. Fashion pop ups, movie productions, recording studios, media companies, tech startups—in a connected world, these can be set up anywhere.
So if you’re about to start a project, consider looking into an OZ near you (interactive map). Funding will likely be easier to come by than elsewhere.
The only thing is that the program is serious about avoiding “churn and burn.” It’s designed to ensure money sticks around in these areas; that investors don’t just parachute in for the tax benefits then bounce. Otherwise, OZs would be a windfall for investors, but not for the communities they’re meant to improve.
So make sure your project has local legs.