Arizona Opportunity Zones

Arizona is #3

in Attracting Opportunity Fund Capital (Novogradac, April 2021)

$664.4 million+

destined for Arizona's Opportunity Zones (Novogradac, April 2021)


IRS: No Change to OZ Boundaries

On May 14, the IRS announced that Opportunity Zones’ established boundaries would not change, even if underlying Census tract boundaries were altered in response to the 2020 Census. 

 

Census tracts are geographic areas that are designed to have about 4,000 people in them, but in reality have 1,200 to 8,000. The variance is driven by different levels of density in rural, suburban and urban areas. Tract boundaries are adjusted to account for population change, as the number of residents grows or shrinks in various tracts. Each Opportunity Zone is a census tract.

 

For Opportunity Zone purposes, the boundaries of the zones “were established at the time they were designated and are not subject to change,” according to the IRS.


ARIZONA OPPORTUNITY ZONES NETWORK

Find and share information about Arizona's Opportunity Zones and Funds with our searchable, interactive database. This tool allows you to connect with experts, explore funds and find investments. 

 

search network


BACKGROUND

Arizona’s Opportunity Zone nominations were submitted on March 21, 2018 and approved by the U.S. Treasury Department on April 9, 2018, making Arizona one of the first states in the nation to have its zones officially designated.

 

The federal Opportunity Zones program allows each state’s governor to nominate up to 25 percent of the qualifying low-income Census tracts as Opportunity Zones. It was created under a provision of the Tax Cuts and Jobs Act, which was signed into law December of 2017. Investors who reinvest capital gains monies in Opportunity Zone funds will receive reductions on capital gains taxes relative to the years of their investment. 

 

Investments held 10 years: taxable amount of the capital gains reinvested is reduced by 15% and no tax is owed on appreciation. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 10 years. Tax owed on the original $100 is deferred until 2026, and taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). No tax is owed on Opportunity Zone investment’s capital gain. Assuming a 7% annual growth rate, the after-tax value of the original $100 investment is $176 by 2028.*

 

Investments held 7 years: taxable amount of the capital gains reinvested is reduced by 15%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 7 years, selling in 2025. Taxable amount is reduced to $85 ($100 minus $15). Investor will owe $20 of tax on the original capital gains (23.8% of $85). Assuming a 7% annual growth rate, the investor will owe $15 in tax (23.8% of $61) on the Opportunity Zone investment’s capital gain.*

 

Investments held 5 years: taxable amount of the capital gains reinvested is reduced by 10%. For example: $100 of capital gains is reinvested into an Opportunity Zone fund and held for 5 years, selling in 2023. Taxable amount is reduced to $90 ($100 minus $10). Investor will owe $21 in tax on the original capital gains (23.8% of $90). Assuming a 7% annual growth rate, the investor will owe $10 in tax (23.8% of $40) on the Opportunity Zone investment’s capital gain.*

 

*Source: Economic Innovation Group, 2018


CONTACT

If you have additional questions regarding Arizona’s Opportunity Zones, please contact us at aoznetwork@azcommerce.com.