Title/Name/Summary
Opportunity Zones 2.0 - Designation
History
The federal Opportunity Zones (OZ) program represents significant opportunity for Illinois to channel private investment into economically distressed communities. Unlike traditional community development programs, OZs are uncapped, investor driven, and by-right. Any taxpayer, with a capital gain, can invest in a designated census tract and receive preferential tax treatment without applying for federal approval.
The OZ incentive operates through Qualified Opportunity Funds (QOFs), which pool investor capital and deploy it into eligible investments. Eligible investments include:
New Construction Projects
Substantial Improvements to existing structures
Operating Businesses within designated tracts
Real Estate Development
Opportunity Zones encourage investment by providing a series of capital gains tax incentives for qualifying activities in designated areas:
Deferral of Capital Gains: Investors may defer taxes on capital gains that are reinvested in QOF for up to five years.
Basis step-up: After the five-year deferral, QOF investors receive a 10% reduction (step-up in basis) on their deferred capital gains tax liability.
Permanent Exclusion: Gains earned on investments in QOFs held for at least 10 years are permanently exempt from federal capital gains tax.
The federal government established that governors could designate up to 25% of their state’s low-income census tracts as Opportunity Zones. A census tract is considered low-income if its median family income was at or below 80% of the state or metropolitan statistical area (MSA) median family income. The census tract may also qualify if the poverty rate of the census tract is 20% or higher.
In 2018, Illinois designated 327 census tracts in the original OZ 1.0 program. While investments were made, the overall program utilization in Illinois has underperformed against national averages. The passage of the One Big Beautiful Bill Act (H.R....
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