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Tennessee Opportunity Zones

Overview

The Opportunity Zone legislation was birthed out of the federal Tax Cuts and Jobs Act of 2017. The legislation is designed to provide economic stimulus to disadvantaged areas. This is accomplished by providing tax incentives for investors with unrealized capital gains to deploy those gains into these areas. The incentives become more beneficial the longer they are held in an opportunity zone, with gains from the opportunity zone investment becoming tax-free after ten years. The ultimate goal for this legislation is to provide new jobs and economic growth for the communities that need them the most.

FAQs

What are Opportunity Zones?

  • Brief History
    • Opportunity Zones and the related tax incentives originated from a group of congresspersons, policymakers, businesspersons and investors from a wide variety of states, geographies, and political affiliations. The goal is to uplift low-income communities with new jobs, physical improvement, and economic growth by increasing active investment in those areas. The legislation incentivizes investors to deploy the $6.1 trillion of U.S. capital gains that currently sits untouched and unused.
  • Zones 
    • The IRS defines low-income communities as “any population census tract where the poverty rate for such tract is at least 20% or in the case of a tract not located within a metropolitan area, median family income for such tract does not exceed 80 of statewide median family income, or in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80% of the greater of statewide median family income or the metropolitan area median family income.” Each state’s government was given the opportunity to identify 25% of its census tracts as Qualified Opportunity Zones. There are now 8,700 of these zones currently in the U.S.
  • Funds
    • A Qualified Opportunity Fund is a partnership or corporation set up for the explicit purpose of investing gains from a previous investment in an eligible property or business venture located in an Opportunity Zone.
    • Opportunity Funds must invest at least 90 percent of its assets into Opportunity Zones. They must also invest in the improvement of the property utilizing resources of equal or greater value than the purchase price of the investment.
  • Incentives
    • Investments in Qualified Opportunity Zone projects are eligible for better incentives as time passes. First, investors are able to defer tax on capital gains until 2026 if they are placed into an active opportunity fund within 180 days of realization. If those capital gains are held in an Opportunity Zone investment for 5 or more years, they are eligible for a 10% credit. If capital gains are held in that Opportunity Zone investment for 7 or more years, they are eligible for a 15% credit. If capital gains are held in an Opportunity Zone investment for 10 or more years, they are eligible for a 15% credit and the gains from the Opportunity Fund investment are untaxed.

Why Opportunity Zones?

How/when are they used?

  • Opportunity Zone investments are beneficial to two groups:

1) people or institutions that have or will receive capital gains from the sale of disbursement from an investment (stocks/equity, accumulated dividends, real estate, etc.) that is subject to capital gains tax
2) the communities of people living in and around these areas

  • The gains from the sale of an investment must be deployed into an opportunity fund with 180 days of the sale of an investment to qualify for the associated tax deferment. After 5 years, the investor will receive a 10% credit on the original gains placed in the fund. After 7 years, they will receive a 15% credit on the original gains placed in the fund. After 10 years, they will receive a 15% credit on the original gains placed in the fund and permanent exclusion from gains realized from an opportunity zone investment.

Where are Opportunity Zones?

Resources

Interested in opportunity zones?

Are you a potential investor, fund manager or company interested in learning more about Tennessee Opportunity Zones? As we build out our database we’d love to hear more about how we can support you!

Opportunity Zones Guidelines

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