Arkansas Economic Development Commission Executive Director Mike Preston is hopeful a new spinoff of last year’s federal tax cut bill could help up to 85 impoverished communities across the state.
Known as “opportunity zones,” the federal tax law allowed states to submit census tract areas as candidates for a program that allows investment in the economically depressed regions to garner key tax benefits. This past week, Arkansas identified and submitted 85 of these “zones” to the U.S. Treasury for approval.
“This could include everything from the traditional economic development project and manufacturing corporate headquarters to a retail shop or hospitality lodging. Whatever that investment might be, as long as you’re using those capital gains to invest in there, you’re going to have the deferment for 10 years,” said Preston, who appeared on this week’s edition of Talk Business & Politics.
According to a state release, a qualified “Opportunity Fund” is any investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zone assets. The fund must hold at least 90% of its assets in qualifying property.
Eligible zones are based on U.S. Census tracts of which Arkansas has 337 possibilities. State leaders only submitted 85 candidates for Treasury Department approval.
Preston said two key defining characteristics of the zones are if 40% of the low income census tract is above the poverty line or if only 80% of the average household wage is 80% below the state or national average wage.
Benefits for investors in opportunity zone projects include a temporary tax deferral for capital gains, a step-up basis for capital gains invested, and a permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund if the investment is held for at least 10 years.
“You look at like the downtown Hot Springs area, they end up with three tracts and that includes the Arlington Hotel, the Old Majestic Hotel site and the downtown area. They’re really looking at that tourism area. They’re looking for redevelopment and dollars going into some of those venues. This is an opportunity for them to invest in an Opportunity Zone,” Preston said.
You can catch his full interview in the video below.