Whether Donald Trump or Joe Biden wins the presidential election this week, commercial real estate can expect the opportunity zone program will remain intact but receive some tweaks. That will likely include some reforms and new reporting requirements no matter what, but which man holds the office could determine if the program grows or shrinks in scope.
A White House led by Joe Biden wouldn’t embrace defunding, though it would likely push a few modest changes, experts say, including more stringent oversight of the program to ensure it benefits low-income communities. It’s also been predicted that he could possibly strip the OZ designation from affluent census tracts and prohibit investments in luxury rental properties and similar assets.
Blake Christian, senior tax partner at HCVT LLP, doesn’t predict major changes to the program under Biden. “It came out of his [the Obama] administration, and I think that’s important,” states Christian. “Biden’s public statements are relatively supportive of continuing the Opportunity Zone program and his suggestions are pretty minor, like more transparency and making sure that they’re invigorating the poor neighborhoods and not just enriching business people.”
“The Biden campaign views opportunity zones as one of the pillars of their economic strategy, especially as it relates to racial equity,” according to Develop CEO Steve Glickman, a former Obama administration official and an architect of the program.
However, with a Biden win, other changes could impact Opportunity Zone investment. In addition to pushing for higher capital gains taxes, the Biden campaign advocates rolling back tax breaks for real estate investors such as 1031 exchanges, which allow the deferral of capital gains taxes if proceeds from an investment sale are ploughed back into another property.
“That would almost certainly lead to more capital being invested in the OZ program because it would be the only alternative,” Glickman said.
If re-elected, experts say President Trump is more likely to expand the program. Ja’Ron Smith, a deputy assistant to Trump, has said the administration would be open to allowing state governors, who had a lot of leeway in choosing which tracts became OZs, to radically expand the zones, perhaps even doubling the number. Currently 25% of census tracts are eligible and there’s talk of this being expanded to as much as 50%.
Another potential impact is the possibility of Trump locking in the current capital gain rate payable on the deferred gain, which will be recognized on Dec. 31, 2026. That would remove the present tax rate risk for investors.
No matter who wins the election, it looks like this bipartisan program is here to stay.
What it sounds like both parties can agree on is that they want opportunity zone funds to start collecting and reporting data on how many jobs OZ investments create in low-income communities, and for the U.S Treasury to provide granular data on the program’s other real-life impacts. The primary objective of the program was to get dollars into distressed communities. The original estimate was that $100B would flow into the zones over 10 years, and after less than two years, investors had already committed $75B, according to an August progress report by the White House Council of Economic Advisers. Let’s hope the positive momentum continues regardless of the outcome of the election.
The total number of census tracts certified as Opportunity Zones by the U.S. Treasury.
Potential unrealized capital gains eligible for Qualified Opportunity Fund investment and tax treatment.
Treasury Secretary Steven Mnuchin’s estimate of private capital that will flow into Opportunity Zones.