It is no secret that across the United States, affordable housing is in critically short supply. Millions of Americans are seeing more than half of their paychecks going to pay for rent. The financial squeeze creates pressure and frustration, particularly for low-income Americans who are struggling and see no hope of change.
Government entities seek solutions to the problem of affordable housing through vouchers, tax credits, initiatives, and assistance programs. Many of these measures provide relief and help to some, but millions of others continue to struggle, finding that even at the end of a long workweek, their paycheck is not enough to cover all basic needs. The idea of owning a home is just a pipedream for most and, realistically, will never be financially possible.
The psychological impact of having to allocate so much of a paycheck to lodging leaves many low-income Americans in a place of hopelessness and frustration. Extra money to spend on leisure activities is not there, and these Americans feel trapped in an endless cycle of working just to pay the bills.
In the face of this significant problem, one program was established by Congress in 2017 to generate more affordable housing in economically depressed areas. The Tax Cut and Jobs Act of 2017 saw the creation of the Opportunity Zones program which provided incentives for investors to get involved in low-income communities in designated “Opportunity Zones.”
The Opportunity Zones Program
The Opportunity Zones program targets specific areas that are located within predominantly low-income communities. Up to twenty-five percent of a geographic area may be designated by a state government as an Opportunity Zone. Any city in the United States with a specified demographic—essentially, a low-income population—can contain Opportunity Zones.
The Opportunity Zones program allows investors to invest in eligible properties in the designated area and enjoy tax advantages in return for investing there.
How the Program Works
An investor who has realized capital gains may put those monies into an investment vehicle called an Opportunity Fund. This fund can be used to make the investment into an eligible property located in an Opportunity Zone.
The capital gains income that is put into the Opportunity Fund is tax-deferred until Dec.31, 2026, and enjoys a rate reduction of up to 15%. If the investment property is held for ten or more years, the taxes on those capital gains may be dismissed altogether. However, over 90% of the Opportunity Fund must be used for the Opportunity Zone investment for the tax advantage to apply.
A tax advantage of this nature provides significant incentive to investors to purchase, improve, and hold properties in Opportunity Zones.
The benefit to the community in which the Opportunity Zone lies in the generation of more affordable housing. More housing options relieve pressure and frees income to be used for other bills and basic needs. The ultimate by-products are hope and economic growth and stability, all of which lead to the revitalization of communities.
Buying Opportunity Zone Homes
Visit Opportunity Zone Resources to see locations of Opportunity Zones in cities across the United States. Investment in Opportunity Zone properties is open to all investors within the established guidelines and parameters.