Trump Advisor Indicates Support for Adding New Opportunity Zones

Oct. 22, 2020, 6:56 PM

A White House official shed some light on what a second term for President Donald Trump would mean for opportunity zones, suggesting what would amount to a potential doubling of the number of areas eligible for tax breaks.

There are currently more than 8,700 census tracks across the U.S. designated as opportunity zones under the 2017 tax law. Investors can reap capital gains tax breaks for putting profits into funds that finance projects in these mostly distressed areas.

States were allowed to choose 25% of their eligible tracts—based on poverty, median income, and other factors—to designate as opportunity zones. Ja’Ron Smith, deputy assistant to the president, said Thursday that officials could “maybe look at another 25" as part of an expansion effort.

“I don’t think we would get rid of zones,” Smith said, during a conference hosted by the firm Novogradac & Co. LLP.

The Trump administration has pledged to expand opportunity zones in his proposed second-term agenda, but until Thursday hadn’t offered any details on how they intend to do it.

Some states’ census tract choices—such as parts of Brooklyn, N.Y., and Portland, Ore.—have come under criticism, as they are seen as far too affluent for tax-advantaged investments. Smith said a new round of zone designations would ideally involve better decision-making by mayors and governors.

“We had a hard time getting local leaders and governors to pay attention to the zones, and you saw what zones did well and ones that didn’t do as well because many governors didn’t really pay attention much on what was designated,” Smith said. For the second term, “everyone will pay attention, be more involved, and be a lot more thoughtful with their opportunity zone strategy.”

Interest in Deadline Extensions

Noting that final IRS rules (TD 9889) for the incentives were finally released late last year, about two years after the tax law’s enactment, Smith also said the White House is “seeing if we can work with Congress to get some extensions around some of the time frames” of the policy after the election.

Smith also expressed support for legislation that would require the Treasury Department to collect data and report to Congress on the economic results of the incentives.

Lawmakers have introduced several proposals on reporting requirements, but they vary in terms of the level of public disclosure of investor information and penalties for investors who don’t comply. A handful of Republicans have also cosponsored a bill (H.R. 6513) to extend a capital gains tax deferral to 2030, from 2026, for investors who put profits into opportunity funds.

Emily Lavery, a staffer for Sen. Tim Scott (R-S.C.), also voiced support for a timing extension—specifically, a two-year delay of the deadline for investors to shield 15% of the gains they funnel into a fund from taxes after the deferral ends.

Under current law, investors had to have put the money into an opportunity fund by the end of 2019—seven years before the tax deferral ends—to get this benefit. Still, they have until the end of next year to invest their profits and avoid tax on 10% of it.

A two year extension of that 2019 deadline is something Scott, one of the architects of the tax breaks, has said he hopes to accomplish.

“A two-year timing extension is more important now, I think, than maybe ever,” Lavery said.

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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