DAYTON — The state of Ohio has nominated large sections of Dayton to be opportunity zones, which under Trump’s federal tax reform bill can give tax breaks to investments in those areas.
The Tax Cuts and Jobs Act of 2017 created the new opportunity zones program with the goal of spurring private investment in distressed communities.
The program provides a tax incentive for investors to re-invest their unrealized capital gains into new funds that put money into economically challenged areas.
Officials say opportunity zones across the nation could attract billions of dollars in new investment into some high poverty neighborhoods.
“It’s basically a way to induce investment in areas that are traditionally under-invested in,” said Tony Kroeger, Dayton city planner.
Dayton officials this week celebrated when they learned that Ohio Gov. John Kasich had nominated 17 of the 20 low-income Census tracts that the city submitted to the state for consideration.
States were able to nominate just 25 percent of their low-income Census tracts to the U.S. Treasury to be designated as opportunity zones. The federal submission deadline was Wednesday.
Large chunks of Dayton were nominated, including downtown, Historic Inner East, Old North Dayton, South Park, Wright-Dunbar, Wolf Creek, Pineview, Lakeview and other neighborhoods.
Investors with capital gains can defer and reduce their taxes by investing in opportunity zones, and capital gains earned in the area will not be subject to taxation, said Diane Shannon, Dayton’s director of the office of management and budget.
“We are very hopeful that we will” see new investment from the program, Shannon said.
In opportunity zones, investments in real estate or businesses can be sold after 10 years with no capital gains taxes, but investors also get a tax break on untaxed capital gains rolled into new opportunity zone funds, according to the Brookings Tax Policy Center.
Investments in qualified opportunity zones that are held for at least 10 years can be sold without any capital gains taxes.
Investments held for five years will see a 10 percent reduction in taxes on the original unrealized capital gains, and those held for at least seven years will see a 15 percent tax reduction.
The biggest incentive for investors is to keep their unrealized capital gains in the opportunity funds for at least 10 years so they will not be taxed on the appreciation, experts said.
U.S. taxpayers have about $2.3 trillion in unrealized capital gains in stocks and mutual funds, according to the Economic Innovation Group.
The new opportunity funds will allow investors nationwide to pool resources and mitigate risk , the group said.
“If this isn’t part of every person’s estate planning, it should be, because this is a very lucrative program for those individuals and their long-term financial interests,” said Alison Goebel, executive director with the Greater Ohio Policy Center.
The opportunity zones program could be another source of financing for transformative projects like the Dayton Arcade, she said.
Goebel, however, said she is concerned that there are no restrictions on where investors can put their money nationwide, and that could mean investors pump their money into opportunity zones on the coasts that have stronger markets and may appear to carry less risk.
She said she hopes Ohio communities do not get overlooked by investors because they need as much access to capital and credit as possible.
Across the country, critics say the program uses old Census tract data and newly gentrified and affluent neighborhoods may be eligible for opportunity fund investments. Critics say some rich areas may benefit from the program and some projects that do not need help will get it.