126 low-income urban and rural zones in Colorado, coined “Opportunity Zones,” are now eligible for a new federal tax incentive created by last fall’s GOP tax overhaul.
The areas approved by the U.S. Department of the Treasury are scattered across the state and vary in size from a few city blocks to entire counties. Zones include locations in Fort Collins, Greeley, Evans, Fort Morgan, Boulder, Denver, Estes Park, Idaho Springs, Eagle and others.
“Colorado’s Opportunity Zones can help create momentum in communities that need a little boost in their economic recovery efforts,” Gov. John Hickenlooper said in a statement. “We owe it to these areas of the state to take advantage of every potential incentive.”
Interactive map shows locations of Colorado's zones:
Each state and territory may nominate up to 25 percent of eligible tracts, determined by a variety of economic indicators like median income levels.
Paula Mehle, economic development manager for the City of Evans, said she was looking forward to working with investors. Evan’s certified zone includes a historic residential area and housing projects along Highway 85.
“We’re very happy to have another tool in our toolbox to become a stronger economy and appreciate the exposure,” she said. “But we’ve only been aware of the program for a few weeks and don’t have full details on our plans yet in the community.”
Mehle added that she hoped the federal incentives could be layered with other enterprise zones and local incentives in Evans.
According to the governor’s office, the Opportunity Zone program provides a “new impetus for private investors to support distressed communities through private equity investments in businesses and real estate ventures.”
The incentives allow private investors to defer, reduce or even eliminate certain federal capital gains taxes when they reinvest money into “Opportunity Funds.” These funds would go towards investments in affordable housing, new infrastructure, startup businesses and various capital improvement projects in any of the 126 communities.
A profit from the sale of property or of an investment.
To identify the areas most in need in Colorado, the state’s Office of Economic Development and International Trade (OEDIT) and Department of Local Affairs (DOLA) partnered with local governments, community partners state legislators and investors, according to Hickenlooper’s office.
“The Department of Local Affairs was eager to be a part of the Opportunity Zone program promoting economic development and assistance in distressed communities,” Irv Halter, executive director of DOLA, said in a statement. “The ability to provide affordable housing and economic growth to underserved populations, allows us to strengthen Colorado communities."
Despite the announcement of Colorado’s 126 zones, the timeline for implementing the new program remains unclear. The U.S. Treasury is finalizing its regulations, according to the governor’s office. Investment groups are organizing specific investment opportunities.
The program does outline several of its main guidelines for investors.
“Opportunity Funds will be comprised of private capital and guided by market principals,” the governor’s website dedicated to the project reads. “The funds must invest 90% of their assets in opportunity zone assets. Funds may invest in opportunity zones via stock, partnership interests, or business property.”
The incentives are set to expire in 2026.
Capital Gains Incentives:
- Capital gains rolled into an Opportunity Fund:
- No up-front tax bill on the rolled-over capital gain.
- Reduction of tax on the rolled-over capital gain investment for long-term holding.
- A 5-year holding increases the rolled-over capital gains basis by 10 percent.
- A 7-year holding increases the rolled-over capital gain investment basis 5 percent for a total of 15 percent.
- Investors can defer their original tax bill until December 31, 2026 at the latest, or until they sell their Opportunity Fund investments, if earlier.
- Opportunity Fund investments held in the fund for at least 10 years are not taxed for capital gains.