The Tax Cuts and Jobs Act of 2017 created a new economic development program that encourages long-term investments in low-income areas, so-called “Opportunity Zones,” by offering tax deferral for capital gains reinvested in businesses in an Opportunity Zone, and a permanent exclusion for gains from the Opportunity Zone investment.
Each state was required to designate its Opportunity Zones, and investors have been anxiously awaiting publication of those designations. We now know which Maine and Massachusetts census tracts were selected.
In Maine, Governor LePage’s designations are spread throughout the state, but they clearly indicate a desire to drive investment into towns that are key to Maine’s forest products industry as well as other manufacturing centers. All of the eligible towns that have suffered from mill closures are included, as are several towns with active and expanding mills.
Despite that preference, several areas that have seen significant startup activity were also included, such as Portland’s downtown and waterfront areas. In total, 13 of Maine’s counties contain an Opportunity Zone. Penobscot County leads the way with seven, including Millinocket, East Millinocket, Old Town, Lincoln, and Enfield. Please click here for a map of Maine’s Opportunity Zones.
In Massachusetts, Governor Baker selected 138 census tracts. About half of these tracts are in so-called “Gateway Cities,” which are municipalities with a population between 35,000 and 250,000, with a median household income and rate of educational attainment of bachelor’s degree or greater below the state average. Rural communities were encouraged to participate as well, and they make up 18 percent of the communities with designated tracts.
We have already seen investors and fund managers beginning their search for opportunities to put capital to work in Opportunity Zones. It’s likely that investments will be targeted toward both large, capital-intensive projects, such as real estate and manufacturing plants, as well as startups and technology businesses. By including a broad array of low-income communities, from rural to urban, both Governor LePage and Governor Baker recognize that there are many different types of investments that can benefit their respective states.
There are still a number of unanswered questions about this program, both in terms of the rules and regulations to come from the IRS, and how investors will structure their investments and what terms they will expect. Here at Pierce Atwood, we are keeping on top of those questions, both on behalf of investors and the businesses seeking investment.