The Tax Cuts and Jobs Act of 2017 established a new economic development program called Opportunity Zones designed to encourage long-term private investments in low-income communities. The program provides a federal tax incentive for taxpayers who reinvest unrealized capital gains into “Opportunity Funds,” which are specialized vehicles dedicated to investing in low income areas called “Opportunity Zones” that will allow investors to defer and eliminate capital gains taxes on gains from investments in economically-distressed localities.
The zones themselves are to be comprised of Low-Income Community Census tracts and designated by governors in every state and territory. The program has the potential to direct private capital toward distressed communities and serve as a catalyst for long-term, inclusive economic development. This may include downtown revitalization, workforce development, affordable housing, infrastructure, and business startup and expansion.
The Governor of Montana may nominate up to 25 eligible Low-Income Community Census tracts for Opportunity Zone designation within the state. Census tracts are small, relatively permanent statistical subdivisions of a county with population sizes between 1,200 and 8,000. Their primary purpose is to provide a stable set of geographic units for the presentation of statistical data.
Rationale: The high priority tract listed below is already ideally located to attract significant new private investment. Tract 11.02 includes at least one significant project on the MSU Innovation Campus that is underway and is a major catalyst for future investment.
Tract 11.02, Census Tract 30031001102 includes the new MSU Innovation Campus. The initial building on the campus, the advanced research laboratory is currently under review by the City and development of the forty acre site is underway with significant private investment already secured. This site represents investments in high-tech facilities and companies facilitating high-wage job growth grounded on the strength of MSU research and technology transfer in a variety of high-tech sectors. The large amount of developable commercial and residential land in this tract makes it a very desirable location for private investment and increased opportunity to add jobs in Bozeman’s many of Bozeman’s growing sectors. The tract is served by appropriately sized infrastructure, including transportation, water, sewer, stormwater and broadband infrastructure, to incentivize significant new private investment and development. This tract can also leverage the existence of the South Bozeman Technology (TIF) District.
How Investing in Opportunity Zones Works
The designation of Opportunity Zones is designed to help spur development of identified communities. In exchange for investing in Opportunity Zones, investors can access capital gains tax incentives available exclusively through the Opportunity Zone program. To access these tax benefits, investors must invest in Opportunity Zones specifically through Opportunity Funds. A qualified Opportunity Fund is a US partnership or corporation that intends to invest at least 90% of its holdings in one or more qualified Opportunity Zones. As previously mentioned, Opportunity Funds are governed by IRC section 1400Z-2 and Opportunity Funds can self-certify to the IRS. But each Opportunity Fund is responsible for ensuring that they abide by the guidelines of the Opportunity Program in order to be able to offer tax incentives.
Because the Opportunity Zone program is intended to stimulate positive growth within designated communities, there are restrictions on the types of investments in which an Opportunity Fund can invest. These investments are called “Qualified Opportunity Zone property,” which is defined as any one of the following:
- Partnership interests in businesses that operate in a qualified Opportunity Zone.
- Stock ownership in businesses that conduct most or all of their operations within a qualified Opportunity Zone.
- Property such as real estate located within a qualified Opportunity Zone.
For more information, contact one of our advisors in the commercial division, 406.404.1960.