North Carolina Department of Commerce

Program Overview

Announcement - 10/19/2018 - Treasury, IRS Issue Proposed Regulations on New Opportunity Zone Tax Incentive

A new program with the potential to attract investment capital into low-income areas of North Carolina was created by recently passed federal tax legislation, known as The Tax Cuts and Jobs Act (H.R.1). North Carolina Opportunity Zones will offer qualified investors certain tax benefits when they invest unrealized capital gains into these areas.

The list of North Carolina Opportunity Zones can be downloaded here

North Carolina’s 252 zones were certified by the United States Treasury on May 18, 2018.

The federal law allows each state to designate up to 25 percent of its total low-income census tracts as zone candidates. North Carolina has just over 1,000 of these tracts, so only 252 census tracts could be selected as Opportunity Zones.

Guided by data and driven by local priorities, North Carolina’s process to identify these tracts, coordinated by the North Carolina Department of Commerce, included an extensive review of census data, public input collected from the Department’s website and direct outreach, and close collaboration with local officials from across the state.

ADDITIONAL DETAILS

H.R. 1 (the Tax Cuts and Jobs Act) was signed into law on December 22, 2017.

The Opportunity Zones Program (Sec. 13823) provides tax incentives for qualified investors to re-invest unrealized capital gains into low-income communities throughout the state, and across the country. Low-income census tracks are areas where the poverty rate is 20 percent or greater and/or family income is less than 80% of the area's median income.

Investments made by qualified entities known as Opportunity Funds into certified Opportunity Zones will receive three key federal tax incentives to encourage investment in low-income communities including:

Temporary tax deferral for capital gains reinvested in an Opportunity Fund

Step-up in basis for capital gains reinvested in an Opportunity Fund

Permanent exclusion from taxable income of long-term capital gains

For additional information on the treatment of capital gains invested and earned through the Opportunity Zones program, please see this summary published by the Economic Innovation Group based in Washington, D.C.

NORTH CAROLINA'S OPPORTUNITY ZONES

North Carolina offers 252 Opportunity Zones in every corner of the state for consideration by investors.

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A multi-phase process led to the nomination of these 252 areas as potential zones.

First, census tracts that could meet the qualifications were determined by the same poverty and income criteria that determine eligibility for New Markets Tax Credits – as defined by Internal Revenue Code Section 45D(e). Eligibility was first based on 2011-2015 Census American Community Survey data with a given census tract having either (1) Median Family Income at or below 80% of Area Median Income (AMI) in the period of 2011-2015 or (2) Poverty Rate of 20% or greater in the period of 2011-2015.

Up to 5% of census tracts that do not meet the definition of a low-income community can be designated under a Contiguous Census Tract exemption. Exempt tracts must be contiguous with low-income community census tracts that are designated as Opportunity Zones, and the median family income of the exempt tract must not exceed 125% of the median family income of the designated low-income community census tract with which it is contiguous.

Using these criteria, North Carolina had just over 1,000 low-income census tracts to consider. Then, to select the number of zones called for in the federal law, the state followed these guiding principles:

An open submission process: Solicit tract and program recommendations through N.C. Commerce’s website and direct outreach
Opportunity for all: Aim for at least one Opportunity Zone in every county
Accommodate as many submissions as possible: Aim to allow each county 25% of their total low-income tracts
Prioritize local recommendations and development goals
Prioritize state industrial site development initiatives

The 252 tracts represent:

A total population over 1.1 million people
Nearly 45,000 families with children in poverty
Over 50,000 business establishments
Over $580 million in received public and private investments over the past 5 years

Program Information

Designation of Opportunity Funds

The U.S. Department of the Treasury is still in the process of developing criteria to determine how qualified Opportunity Funds will be certified, and the process they will follow to certify those funds. The U.S. Department of the Treasury has not released a timeline for when capital may begin to flow, but earliest estimates point to late 2018 or early 2019.

History

The Opportunity Zones program is based on the bipartisan "Investing in Opportunity Act," which was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), who led a regionally and politically diverse coalition of nearly 100 congressional cosponsors. The Economic Innovation Group (EIG) originally developed the Concept of Opportunity Zones in 2015.

Opportunity Zones Program and Related Legislation

Treasury, IRS Issue Proposed Regulations on New Opportunity Zone Tax Incentive

On October 19, 2018, the Treasury Department and the Internal Revenue Service issued proposed regulations and other published guidance for the new Opportunity Zone tax incentive. Under a nomination process completed in June, 8,761 communities in all 50 states, the District of Columbia and five U.S. territories were designated as qualified Opportunity Zones. North Carolina designated 252 census tracts, providing a new development tool to every NC county.

The proposed regulations clarify that almost all capital gains qualify for deferral. In the case of a capital gain experienced by a partnership, the rules allow either a partnership or its partners to elect deferral. Similar rules apply to other pass-through entities, such as S corporations and their shareholders, and estates and trusts and their beneficiaries.

In addition to the proposed regulations, Treasury and the IRS issued an additional piece of guidance to aid taxpayers in participating in the qualified Opportunity Zone incentive. Rev. Rul. 2018-29 provides guidance for taxpayers on the "original use" requirement for land purchased after 2017 in qualified opportunity zones. They also released Form 8996, which investment vehicles will use to self-certify as QOFs, along with filing instructions.

More information on Opportunity Zones, including answers to frequently-asked questions, is on the Tax Reform page of IRS.gov. The Tax Reform page will also feature updates on the implementation of this and other TCJA provisions. For NC specific information and program updates, please contact Business Link North Carolina (BLNC) at (800) 228-8443.

Complete list of Opportunity Zones can be downloaded here

Important Dates

February 13, 2018 - Public notice regarding Opportunity Zones is released
March 27, 2018 - Suggestion period closed
April 20, 2018 - Formal recommendations to US Treasury
May 18, 2018 - Federal certification by the US Treasury
October 19, 2018 - Proposed regulations provided by IRS and US Treasury

Next Steps and Making Recommendations

Federal certification of the state’s Opportunity Zones was published on May 18, 2018.

The NC Opportunity Zones Program is designed to encourage job creation, economic activity, housing and other community investments throughout North

Resources

Announcement - Access additional NC Opportunity Zones Program resources.

Access the NC Opportunity Zones Program ArcGIS Feature Service

Download the NC Opportunity Zones Shape Files

Download the North Carolina Opportunity Zones

apply

The North Carolina Department of Commerce is compiling a database of people who can serve as a local area Point of Contact for each of North Carolina's Opportunity Zones. Please submit the local contact information for the person or persons you are recommending to serve in this role, using this form. N.C. Commerce will confirm each contact's participation before publishing its directory of contacts.

For further information, contact David Rhoades, Communications Director, N.C. Commerce at (919) 814-4611

All fields are required.

North Carolina Opportunity Zones Program