An Introduction to Opportunity Zones

My wife and I are celebrating our 1-year anniversary this weekend with a quick getaway to somewhere yet-to-be-disclosed (I planned and surprised her with our honeymoon and now we plan to switch off for our anniversaries moving forward). As such, this week I will be doing a somewhat abbreviated post. Don’t let the brevity fool you though, the topic of Opportunity Zones is one that I am spending a lot of time researching and thinking about. This piece of legislation passed as part of the 2017 tax reform has some exciting implications for investors and low-income communities In the above video, Steve Glickman co-founder of the Economic Innovation Group (the lobby group that pushed for this legislation) outlines what exactly opportunity zones are at a high level.

(Side note: I read a very interesting article on why some of the measures of growing inequality and lack of financial prospects in this country may be overplayed that you may find interesting. My view is that there are definitely structural problems that need solving, but it requires a more nuanced approach than sometimes suggested. I think Opportunity Zones (OZs for the cool kids) can be that approach. Anyways, back to your normally scheduled running train of thoughts from inside of my head)

My understanding of how Opportunity Zones work on a high level (not tax advice):

  • Investors can defer taxes on existing capital gains by investing those gains into an Opportunity Zone fund for up to 9 years

  •   If those gains are held in the fund for over 10+ years, the investor does not have to pay any taxes on the additional gain those funds have realized over the life of their investment

The purpose of this initiative is to spur economic development in emerging market areas within the US. The incentive is investment type agnostic so venture capital investors can take advantage of these incentives alongside other investors such as real estate and private equity. The IRS just released some very investor friendly initial guidance, but there are still some questions that remain to be answered.

If you want to learn more, below are some excellent resources that I have been using to get up to speed on the potential opportunity (come on you knew I was going to do it at least once. Be impressed I showed this much restraint).

Economic Innovation Group - The lobby group that pushed for the OZ legislation. Their site is a great resource for the latest developments for the program and also has some interesting resources (including an OZ map that is weirdly fun to play around with).

Hypothesis Ventures - A new VC firm that was formed with the sole intention of investing in opportunity zones. Their website is a great resources as well as their podcast and some of the press coverage they have been receiving

Upside - One of my new favorite podcasts highlighting startups outside of Silicon Valley (sound familiar). They have a great episode with the founder of that is definitely worth a listen!