A provision in the new tax law that was designed to help spur economic development in low-income neighborhoods could be exploited by real estate developers who want to build luxury condominiums.
The little-known change in the tax code passed late last year would allow states to designate “opportunity zones” in low-income areas, Bloomberg reported.
Some community groups and tax policy experts say investors who develop real estate or fund businesses in these zones will be eligible for tax breaks, according to the report.
This has led state governors to submit proposed zones to the U.S. Treasury Department, which certified some of them earlier this month. The rest had to make their submissions by last Friday.
The provisions’ backers hope the tax breaks will create jobs and boost local economies in parts of the country that badly need it.
Some opponents, however, say that the legislation is so broadly written that savvy investors, corporations, and real estate developers could exploit it. It could also promote the kind of investments that are intended, such as new small businesses and affordable housing, critics acknowledged.
“It could be used to take affordable housing and convert it into market-rate condos,” says Brett Theodos, a senior researcher at the Urban Institute. “It could be used to support payday lenders. Amazon could engineer it into an investment vehicle for HQ2.”
The idea for opportunity zones was initially hatched three years ago in a white paper from the Economic Innovation Group, a nonprofit founded by Sean Parker, the Napster creator and first president of Facebook.
One of their key ideas was to allow investors to defer paying capital gains taxes if they sold appreciated investments and rolled the money into funds that would target distressed communities. This would entice Americans to put some of their roughly $6 trillion in unrealized investment gains toward areas that need it. [Bloomberg] — Keith Larsen
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