Tax Cuts and Jobs Act of 2017
Created by the Tax Cuts and Jobs Act of 2017, the federal government’s Opportunity Zones are re-shaping the real estate landscape throughout the entire United States.
An Opportunity Zone is an economically-distressed Census Tract where new investments, under certain conditions, may be eligible for preferential tax treatment with regard to capital gains tax liability.
The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund:
- Temporary Deferral – A temporary deferral of taxable income for capital gains can be achieved for gains that have been reinvested into a qualified Opportunity Fund. The deferred gain must be recognized on the date when the opportunity zone investment is disposed of, or December 31, 2026, whichever is earlier.
- Step-Up in Basis – Investors can achieve step-up in basis for capital gains reinvested in a qualified Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years. The basis is increased by an additional 5% if held for at least 7 years.
- Permanent Exclusion – A permanent exclusion from capital gains tax liability from the sale or exchange of an investment in a qualified Opportunity Fund can be achieved if the investment is held for at least 10 years. The permanent exclusion only applies to gains accrued after the initial investment in a qualified Opportunity Fund.
Census Tracts Designated as Opportunity Zones in Worcester, MA
Fortunately, Worcester has been identified as an area where new and continued investment and re-development is needed. The City currently has six (6) designated Census Tracts designated as Opportunity Zones:
Census Tract 7305.00 is generally bounded by Salisbury Street, Grove Street and Indian Lake to the west, Belmont Street (Lincoln Square) to the south, I-290 and the railroad tracks to the east and Shore Drive to the north. It is a portion of North Worcester, including major commercial corridors such as Gold Star Boulevard and much of West Boylston Street.
Census Tract 7313.00 is generally bounded by Main Street to the northwest, Crystal Street to the west, the Providence and Worcester railroad tracks to the southeast and Hermon Street to the northeast. It includes a portion of the Main South neighborhood. Part of this area has also been designated as a Transformative Development Initiative (TDI) District by MassDevelopment.
Census Tract 7314.00 is generally bounded by May Street to the southwest, Mayfield Street (across Park Avenue) to the northwest, Chandler Street to the northeast and Main Street to the South East. Much of the area is known locally as the Village of Piedmont.
Census Tract 7317.00 is generally bounded by Irving/Lancaster Street to the west, Highland Street (Lincoln Square) to the north, Summer Street/I-290 to the northeast, the Providence and Worcester railroad tracks to the southeast and Hermon Street to the southwest. It is known locally as the Central Business District, or Downtown.
Census Tract 7325.00 is generally bounded by Quinsigamond Avenue to the south and west, I-290 to the east and the Providence & Worcester railroad tracks to the north. Much of the area is known locally as the Canal District and Green Island. A portion of this area is also part of the City’s adopted Urban Revitalization Plan.
Census Tract 7328.01 is generally bounded by the Worcester-Millbury town line to the southeast, the Worcester-Shrewsbury town line to the northeast, Sunderland Road to the north and Massasoit Road to the west. It includes a significant part of Route 20, and a portion is known locally as Grafton Hill.
These Opportunity Zones in Worcester are making a difference. At Kelleher & Sadowsky, our clients are finding more suitable potential than existed before the passage of this legislation. With significant tax savings, investors are able to improve their risk management models and take on projects that otherwise would not be feasible.
The recent economic development of Worcester is well-documented. New professional sports team(s!), greater commuter access to Boston, and exciting new housing are just a few examples of our city’s progress in just the last few years. Opportunity Zones throughout Worcester are creating incentives for this impressive trajectory to continue.
Should you have any questions about this article – or any commercial real estate matter – please feel free to contact me at [email protected] or call me at 508-841-6412.