New tax break rules aim to lure in­vestors

Crit­ics dis­pute claim de­pressed ar­eas will ben­e­fit

Daily Southtown (Sunday) - - Business - By Marcy Gor­don

WASH­ING­TON — The Trump ad­min­is­tra­tion is propos­ing rules for in­vestors in a new pro­gram that it says could have a big im­pact on eco­nom­i­cally de­pressed ar­eas around the coun­try.

About 8,700 so-called “op­por­tu­nity zones” have been set up in all 50 states to lure in­vestors and de­vel­op­ers with tax breaks.

The rules from the Trea­sury Depart­ment, is­sued Fri­day, lay out the pe­riod of time that in­di­vid­u­als or com­pa­nies must hold on to their in­vest­ments in the zones to avoid pay­ing taxes on re­sult­ing prof­its.

Ad­min­is­tra­tion of­fi­cials say the goal of the pro­gram, es­tab­lished by the new tax lawe­n­acted last De­cem­ber, is to cre­ate busi­nesses and jobs in low-in­come ar­eas and lift res­i­dents out of poverty. Trea­sury Sec­re­tary Steven Mnuchin pre­dicts that $100 bil­lion in pri­vate cap­i­tal will be in­vested in the new zones.

“This in­cen­tive will fos­ter eco­nomic re­vi­tal­iza­tion and pro­mote sus­tain­able eco­nomic growth,” Mnuchin said in a state­ment.

But some crit­ics say the new rules and the way the pro­gram is set up will ben­e­fit real es­tate de­vel­op­ers and Wall Street funds, and will pull in­vest­ment to­ward more well-off ar­eas that need it least.

“The real es­tate in­dus­try is com­pletely ex­cited and mo­bi­lized about this, and nowis get­ting paid through mas­sive tax cuts,” said Tim­o­thy Weaver, a pro­fes­sor at the State Univer­sity of New York in Al­bany who has

stud­ied sim­i­lar de­vel­op­ment pro­grams.

He said the pro­gram “doesn’t have much of an ef­fect other than giv­ing tax breaks to peo­ple who are go­ing to in­vest any­way.”

Un­der the rules, the in­vest­ments are open to in­di­vid­u­als, cor­po­ra­tions, part­ner­ships and real es­tate in­vest­ment trusts.

Any kind of busi­ness or real es­tate de­vel­op­ment is qual­i­fied so long as it isn’t deemed by reg­u­la­tors to con­trib­ute to vice — a liquor store or mas­sage par­lor, for ex­am­ple.

Par­tic­i­pants can take their prof­its from un­re­lated in­vest­ments and plow them into an op­por­tu­nity zone fund, avoid­ing pay­ing taxes on those gains un­til the end of 2026.

De­pend­ing on how many years they hold the in­vest­ment, they can re­duce their even­tual tax bill by up to 15 per­cent.

In­vest­ments within the zones held for 10 years or more are en­tirely free of cap­i­tal gains taxes.

A new rule sets up a 70-30 split for de­ter­min­ing if cer­tain busi­nesses are el­i­gi­ble for the tax break. Pro­vided that at least 70 per­cent of a busi­ness’s “tan­gi­ble” prop­erty sits within a

zone, it is con­sid­ered el­i­gi­ble even if the rest is out­side the zone. An ex­am­ple would be in­di­vid­ual lo­ca­tions of a restau­rant chain, some in­side and some out­side.

With 30 per­cent of the prop­er­ties al­lowed out­side the zones, many of the new jobs could come in al­ready boom­ing ar­eas, Weaver said.

Brett Theo­dos, prin­ci­pal re­search as­so­ciate at the Ur­ban In­sti­tute, es­ti­mates that only 10 to 15 per­cent of the zones will at­tract in­vest­ment, and that around 10 per­cent could get 90 per­cent of the money in­vested.

The 8,761 cen­sus tracts now of­fi­cially beck­on­ing to in­vestors as op­por­tu­nity zones en­com­pass some 35 mil­lion peo­ple.

Based on Cen­sus data, the zones have an av­er­age poverty rate of 32 per­cent, com­pared with the na­tional av­er­age of 17 per­cent.

Gover­nors in the states and ter­ri­to­ries put for­ward their choices for ar­eas to be­come spe­cial de­vel­op­ment zones.

Ev­ery choice — 100 per­cent of the ar­eas pro­posed — was blessed by the Trea­sury Depart­ment after a four-month re­view.

MAN­DEL NGAN/GETTY-AFP

Trea­sury Sec­re­tary Steven Mnuchin pre­dicts that $100 bil­lion in pri­vate cap­i­tal will be in­vested in the new zones.

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