Arkansas Economic Opportunity Zones

What is an Opportunity Zone?

An opportunity zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Locations qualify as opportunity zones after being nominated by the state, and the Secretary of the U.S. Treasury has certified the nomination through the Internal Revenue Service.

Congress created opportunity zones in the Tax Cuts and Jobs Act of 2017 as economic development and job creation tools for distressed communities.

HOW WERE OPPORTUNITY ZONES DESIGNATED?

Opportunity zones were designated based on low-income census tracts, as defined in Section 45D of the Internal Revenue Code. The governor of each U.S. state and territory nominated up to 25 percent of their low-income census tracts to be certified by the Secretary of the Treasury through the Internal Revenue Service.

More information on the designation process can be found here.

HOW DO QUALIFIED OPPORTUNITY FUNDS SPUR ECONOMIC DEVELOPMENT?

Opportunity zones spur economic development by providing tax benefits to investors in Qualified Opportunity Funds (QOFs). A QOF is an investment vehicle organized as a corporation or partnership with the specific purpose of investing in opportunity zone assets. The private sector is responsible for establishing QOFs.

Investors can defer tax on any prior gains invested in a QOF until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than five years, there is a 10% exclusion of the deferred gain. If held for more than seven years, 10% becomes 15%.

If held for at least ten years, the investor is eligible for an increase in the QOF investment equal to fair market value on the date that the QOF investment is sold or exchanged.