have the same goals. For instance, are we targeting the right areas? The New York Times has reported that the Long Island City census tract consid- ered by Amazon is actually do- ing pretty well. Residents there have a median annual income of $138,000. “Unlike some other economic de- velopment incentives, however, this tax break does not include rules or tests requiring its direct bene- ficiaries to make specific invest- ments that actually produce public benefits or requiring that opportu- nity zone businesses hire workers from, or provide services to, the local community,” says the Center on Budget and Policy Priorities. “If anything, its incentives push in the opposite direction: the tax break is worth the most with respect to investments whose value rises the fastest. As a result, investors will likely select investments — such as luxury hotels rather than affordable housing — based mainly on their expected financial return, not their social impact.” Additional risk factors include, but are not limited to, such issues as:
Investors should have three central concerns: (1) Loss of their investment, (2) failure to make a profit on their investment in the funds, and (3) a change in the tax laws. For example, tax rates may increase in the future, so an investor may defer gains, but face a
higher tax rate on those gains later.”
STEVE ROSENTHAL
Steve Rosenthal, with the Ur- ban-Brookings Tax Policy Center and a tax attorney, tells the Hous- ing News Report that investors should have three central con- cerns: “(1) Loss of their invest- ment, (2) failure to make a profit on their investment in the funds, and (3) a change in the tax laws. For example, tax rates may increase in the future, so an investor may defer gains, but face a higher tax rate on those gains later.” Investors are interested in cap- ital gains tax relief. But, if their investments have weak returns or actual losses, it may be cheap- er to pay the tax. Each Qualified Opportunity Fund will represent a different investment profile. As with stocks and bonds, investment results will vary. No doubt there will be services and online sites to rank QOF results. Besides investors, who or what else could be impacted – and should therefore be considered?
that often creates community suc- cess and the O-zone program is all about moving dollars from inves- tor accounts into local projects. But what is OZ success? And what are the risks? The answers are surprisingly complicated, in part because the program is new and little information is available. That information deficit, howev- er, is likely to end. In April, the IRS sent out a proposal “to measure the effectiveness of the policy” in terms of such factors as job cre- ation, economic development, and investment activity. If the proposal is approved, QOFs will have to an- swer a variety of questions when filing their annual Form 8996s. Even with more information, the question of “success” and how to define it remains elusive. The problem is that the Opportunity Zone concept involves a variety of stakeholders and not all of them
What is the fee structure for an individual fund?
Where will the money be invested? Is it better to invest in a few census tracts or to broadly diversify? Each ap- proach has risks.
What types of projects will be undertaken?
How and when will investors recover their money?
Must investors have a mini- mum net worth? How much?
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