The Times Herald (Norristown, PA)
Norristown one of 20 tracts Wolf picks for investment incentives
Tax break passed by Congress could spur development
Although the tax reform adopted by Congress in December was seen to be a particularly partisan vote, it has yielded a benefit that is spurring a bi-partisan effort to encourage private investment in low-income urban areas in Pennsylvania.
Contained in the tax reform bill was a program called federal Opportunity Zones, which is aimed at making use of dormant private capital by offering tax breaks for private investment in low-income rural and urban areas.
In Southeast Pennsylvania, it has led Gov. Tom Wolf, a Democrat running for reelection, to nominate 20 Census tracts in Berks, Chester, Delaware and Montgomery counties to be eligible for the benefit.
In Berks County, five of six tracts are in the City of Reading, with one in West Reading.
In Chester County, all four tracts are in the City of Coatesville.
Delaware County has six tracts nominated, two along Route 13 in Lansdowne and Clifton Heights and another four along the Delaware River in and around the City of Chester.
Pottstown landed three of the four nominations in Montgomery County, with another tract along the Schuylkill River in Norristown also being nominated.
Although not all the details have been worked out, the concept behind the program is to allow investors to take dormant capital and invest it in specially designated “Opportunity Funds,” the creation of which is not yet fully outlined.
The benefit for the investors is it allows them to defer and, in some cases eliminate, income taxes on the capital gains earned from the investments those funds make in projects in the low-income Census tracts designated as “Opportunity Zones.”
The Wolf administration announced those designations on April 20 and they will be reviewed and, presumably, confirmed by the U.S. Treasury Department by mid May.
The nominated tracts need to meet certain lowincome and governors were permitted to nominate up to 25 percent of the qualifying Census tracts to be designated as Opportunity Zones.
By June, guidance from the Internal Revenue Service is scheduled to be released, clearing the way for the Opportunity Funds to be created.
Final implementation of the program is not expected until the fourth quarter of this year, or the first quarter of the next.
A minimum of 90 percent of an Opportunity Fund’s assets must be invested in an opportunity zone, according to an overview of the program published by the Pennsylvania Department of Community and Economic Development.
In terms of incentives, investors can roll existing capital gains into Opportunity Funds with no up-front tax bill.
If they keep their capital in those funds for five years, they will only have to pay 90 percent of the tax on any of the original gains, and if they keep the capital in for seven years, they pay only 85 percent of the tax bill.
Further, the original tax bill can be deferred until Dec. 31, 2026, or until they sell their Opportunity Fun investments. And if they keep their investment in the Opportunity Fund for 10 years, after settling their original tax bill, they will face no capital gains tax on Opportunity Fund investment gains.