Many consumers no longer make decisions solely based on the product or service they are receiving, but also consider the principles and values of the organizations they are engaging. Companies are now more emboldened than ever to align themselves with social issues, promote partnerships with charities and herald their sustainability practices to differentiate themselves from the competition. While an emphasis on social responsibility is influencing how consumers want to spend their money, it’s also impacting where they invest their money.
Impact investing is growing in popularity at a significant pace. There are $ 46.6 trillion in total assets under professional management in the United States. In late 2018, the US SIF Foundation reported that a little over a quarter of that — $ 12 trillion, to be exact — is invested in sustainable, responsible and impact investing assets. That represented a 38% increase in a two-year span. Among the popular types of impact investment options available, opportunity zones have been heating up. From what I’ve seen working with an opportunity zone fund administrator, this is not only due to the shift in social awareness, but also because of deadlines surrounding the qualified opportunity zone program.
Qualified Opportunity Zones
Qualified opportunity zones are designed to boost economic development in low-income communities through an inflow of private capital. The actual geographies of these zones can range from rural counties to urban environments and everything in between. Opportunity zones provide the potential and incentives to build up struggling communities, attract new businesses and spur job creation. The qualified opportunity zone program, which was created as part of the 2017 Tax Cuts and Jobs Act, is creating urgency to capitalize on these investments.
Through the program, 8,700 U.S. census tracts have been identified and approved as opportunity zones. These zones span all U.S. states, five U.S. territories and the District of Columbia. Investors can receive incentives through investment in a qualified opportunity fund (QOF), an investment vehicle in the form of a corporation or partnership for investing in a qualifying property located in one of the aforementioned opportunity zones. Incentives will vary depending on the length of investment commitment.
For a 10-year period of investment commitment, benefits include temporary capital gains tax deferral from the sale of appreciated assets until December 31, 2026, or when the QOF investment is sold, whichever is earlier; possible elimination of capital gains due on the appreciation in a QOF; and an increase in basis of gains invested in the fund, which can result in a reduction of taxable capital gains up to 15%.