Opportunity zones were created and designated by the Federal government by the signing of the Tax Cuts and Jobs Act on December 22, 2017. There are 879 census tracts across California that are Qualified Opportunity Zones (QOZ). The City of Corona contains two opportunity zones. Census tracts: 414.10 and 417.03.
According to the IRS, a QOZ is, “An economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment”. QOZs were created by the federal government in areas where median family income is at or below 80% or hold a poverty rate of 20% or greater. Additionally, up to 5% of census tracts with high transience and overall low population are eligible if median family income did not exceed 125% of their low-income neighbors.
Opportunity Zones create an economic opportunity for development by providing tax incentives to investors for long-term investments in the distressed areas of the community, whether that be a business partnership, stock ownership, or property investment. An investor does not need to live, work, or have a business in an opportunity zone to invest and gain tax benefits from the federal government.
Investors can defer paying capital gains tax until December of 2026 and can reduce tax liability 10-15% depending on the amount of years held, additionally investors will pay no capital gains on the increased value of opportunity zone investments held for at least 10 years.
Qualified Opportunity Funds (QOF) are investments made by corporations, LLC’s, or partnerships into assets located inside a QOZ with the intention of holding at least 90% of total assets within the zone.
Funds must be generated by existing unrealized capital gains and be invested within one of the QOFs to qualify for tax breaks. A timeline of 180 days is in place for the reinvestment of capital gains into a QOF.
Why Opportunity Zones?
The purpose of opportunity zones is to reinvest unrealized capital gains into designated census tracts to stimulate specific parts of the local economy and provide generous tax breaks to investors in the process.
The longer the investment is held in the QOF, the larger the tax break for the investor. When assets are held:
- At 5 years, 10% of the original deferred gain is exempt from taxation
- At 7 years, 15% of the original deferred gain is exempt
- At 10 years, investors qualify for permanent exclusion from taxable income on QOF gains
Frequently Asked Questions
Were Opportunity Zones established with city council approval? Was the Chamber of Commerce allowed input?
Opportunity Zones were not established through Corona City Council approval and are not determined at the local level. They were created and designated by the Federal government and added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.
Additionally, the Chamber of Commerce was not a part of the process and did not have input in the Tax Cuts and Jobs Act when it was passed.
Was the public given any meetings to provide stakeholder input to the selection? Were Corona city staff asked to evaluate multiple areas?
No because that was not part of the process when the Tax Cuts and Jobs Act was passed by the Federal Government.
What is the purpose of the U.S. Census?
The U.S. Census is mandated by the Federal government. In Article 1 Section 2 of the United States Constitution, it mandates that an official count be taken of the population. This is necessary for more than one reason.
First off, it is important to know that the House of Representatives are numbered based on the number of constituents in their state. The same goes for the Electoral College. Since these two very important groups of people are based on the number of constituents in each state, a count must be taken every ten years to determine how many people there actually are in each state, and in the United States in total. This is what the purpose of the U.S. Census is for. On every year that ends with a 0, an official count is taken of the number of people in each state. For all of the years in between, trends are used to make estimations and projections about the number of people there are.
Secondly, the U.S. Census is important for the purposes of distributing funds to the public. Taking a count of the people in the country helps the Federal government decide what areas of the population are in need of what services such as: welfare, housing projects, parks and other things mandated by the federal government.