Investors advised to plan for opportunity zones

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Ben Johnson, director of research at the S.C. Department of Commerce, advised investors to begin planning for a federal community development program aimed at revitalizing low-income areas known as opportunity zones.

Johnson told a meeting of the Urban Land Institute that all 135 tracts of land nominated by Gov. Henry McMaster have been approved by the U.S. Treasury Department, which determined 538 of South Carolina’s 1,097 census tracts to be distressed or severely distressed communities. The opportunity zone program allows state governors to designate 25% of eligible communities for inclusion.

Of those 135 tracts, 128 have been designated as low-income community tracts, while seven are listed as contiguous, meaning they share a border with a low-income tract, Johnson said Thursday. A median family income in a contiguous tract may not exceed 120% of the neighboring low-income tract.

Richland County has nine opportunity zones, the most in the state. Lexington County has six.

The opportunity zone program, established by Congress as part of the Tax Cuts and Jobs Act of 2017, provides tax incentives for the reinvestment of unrealized capital gains. Investors can roll existing capital gains into opportunity funds with no upfront tax bill and can defer their first bill until as late as Dec. 31, 2026. Investments held in the fund for at least 10 years are not taxed for capital gains.

A five-year holding increases the rolled-over capital gains basis by 10%; a seven-year holding increases the basis an additional 5%.

“This is a great opportunity to attract private investment,” Johnson said. “If the program is successful, there will be fewer blighted properties throughout the state. The benefit is how flexible it is for investors.”

Johnson told the group that for the program to be effective, investors’ capital must be coupled with other investments, including those from local municipalities.

“The opportunity zone, by itself, probably won’t have that much impact without help,” Johnson said.

The Treasury Department, after approving the nominations, delegated authority of the program to the IRS. While the IRS hammers out the specifics of the program’s administration, including certification of investment funds, Johnson urged those looking to participate to begin scouting suitable tracts.

“Judge the attractiveness of certain sites,” Johnson said. “Start searching for places that will accommodate your plans.”

In the Midlands, the BullStreet District is listed as an opportunity zone. Johnson said it was not a contiguous tract but qualified by low income.

“It will have that added boost to attract investors,” Johnson said. “In an ideal world, we should see investment.”

Robert Hughes of BullStreet developer Hughes Development Corp. said the opportunity zone designation validates the area’s investment potential.

“Being centrally located in downtown Columbia (with) 181 acres all primed for redevelopment — this just creates more opportunity and drives more investment,” Hughes said. “In talking with developers across the country, we hope this new legislation and tax code will continue to spark interest.”