A small section of the new tax law could help distressed communities throughout the U.S. by offering investors a tax incentive.
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The provision, which was included by South Carolina Republican Sen. Tim Scott, encourages states and territories to designate “Opportunity Zones” — neighborhoods and towns in desperate need of investment. Investors such as banks and hedge funds can then create funds to either seed new business, provide capital in order to expand on existing businesses or invest in real estate development in a given area, the New York Times reports.
Investors are incentivized to do this through a minimized tax burden, which also gives preferential treatment to investments retained for a longer period of time. Investors who have held assets for at least seven years would pay 85% of the capital gains taxes due on the original investment, instead of the full 100%. Those held for more than 10 years may be able to avoid capital gains taxes on the funds' investments entirely, according to the NYT.
While critics have said the plan may still result in distressed communities like Stockton, California, or Youngstown, Ohio, being overlooked, others insist Opportunity Zones are specifically designed to be more effective than programs of the past and will garner even more investment than initially expected.
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