California needs to conform with federal Opportunity Zone provisions

(California Economic Summt)

(Photo: Justin Day/Flickr)

(Photo: Justin Day/Flickr)

BY BRAD WILLIAMS

When California's state legislators return to session on Monday, one of the issues they will be considering is legislation that will allow the state to take full advantage of Opportunity Zones investment in some of the poorer areas of the state. Opportunity Zones (OZs) provide a new tax incentive to spur private investments in communities of need.

The program addresses a major challenge facing California and the rest of the nation — a profoundly uneven economic recovery that is producing great wealth and income in a distinct minority of communities, while leaving many others to struggle with chronically high levels of poverty and unemployment, and lagging incomes. It addresses this inequity by incentivizing investment in struggling communities through the tax code.

How the program works  

Investors may defer federal taxation on capital gains by investing the proceeds through a qualified opportunity fund (QOF) into an opportunity zone. Taxation of the gains rolled into the QOFs is deferred until the taxpayer sells his/her shares, but no later than December 2026. In addition, 10 percent of the capital gains rolled into the QOFs are excluded from taxation if the shares in the QOF are held for five years, and by 15 percent if the shares are held seven years. Capital gains on the investments made through the QOFs and held for at least 10 years are permanently excluded from taxpayer income.

Read more