Now that most Opportunity Zones have been designated, we thought it would be good to provide some insight on the basics of Opportunity Zones and how this tax incentive could be used to spur investment into low-income and underserved communities across the country. How should local communities with Opportunity Zones begin the important work of identifying potential investments and attracting investors? We review the basics in this post from the Council of Development Finance Agencies.


Created as part of the Tax Cuts and Jobs Act, Opportunity Zones are a federal economic development tool aimed at improving the outcomes of distressed communities around the country. Opportunity Zones are low-income census tracts that offer tax incentives to investors who invest and hold their capital gains in Opportunity Funds. These Opportunity Funds must invest at least 90% of their assets in qualified investments located in Opportunity Zones. Investors in Opportunity Funds receive a temporary deferral on their capital gains taxes if they hold their investments for at least 5 years, and a permanent exclusion from a tax on capital gains from the Opportunity Zones investments if the investments are held for 10 years.

Designating Opportunity Zones

Governors could select up to 25% of eligible low-moderate income census tracks in their states to become Opportunity Zones. Many states opted to conduct a local nominations process, seeking input from communities about the best census tracks to consider. This process allowed for an efficient federal to state delivery mechanism that gave local communities the ability to nominate the areas that presented the most promise for investment.

As of today, Opportunity Zones have been designated by the U.S. Department of the Treasury in 46 states, Washington, DC and 5 territories. All other states are presently working with Treasury to complete the designation process, and announcements about those designated Opportunity Zones are expected in the coming weeks. You can view all designated Opportunity Zones in an interactive map from Enterprise Community Partners and Opportunity 360. Early analysis of these zones shows that about 25% of them are located in rural areas, with the majority being in densely populated urban areas and job centers across the U.S.

The Incentive for Investors

Communities designated with an Opportunity Zone are now eligible to receive investment from Opportunity Funds. These funds can be created by investors using unrealized capital gains, which some estimates point to being a $6 trillion market. Investors will be able to defer capital gains taxes for 5 or 7 years, and those capital gains taxes are completely waived if they are invested for 10 years. Opportunity Funds must have 90% of their assets invested as equity in qualified projects in Opportunity Zones in order to receive this incentive. Opportunity Funds can make these equity investments into certain real estate projects or into businesses suited for equity or high growth. It is prudent to note that we are still waiting on guidance from Treasury about what constitutes as an approved investment.

Next Steps for Communities with Opportunity Zones

The most important element of having a designated Opportunity Zone is realizing that investment will only flow to these zones if there are qualified projects. It is incumbent on the local community to develop a strategy for identifying potential investments or investment areas and making those opportunities known to potential investors. Unfortunately, there is no legislated requirement for Opportunity Funds to coordinate with local communities or to report on their activity. As such, communities should be proactive in assembling resources to be able to communicate with investors.

CDFA has already observed many of our members across the country begin to consider local companion programs that also waive states capital gains taxes. In addition, Missouri has introduced legislation to allocate a portion of its historic tax credits to projects in Opportunity Zones and California has introduced legislation to exempt projects in Opportunity Zones from being subject to the state’s most stringent environmental laws. CDFA strongly encourages agencies to consider tying these additional incentives to reporting requirements for investors to encourage them to coordinate with local communities and align their investments to local economic development priorities.

CDFA expects investments to begin flowing toward the end of 2018 or early 2019. Local communities should be using this time wisely to align all of their resources to attract investment and to consider the broad set of financing needs that projects in Opportunity Zones may require. Identify now the local capacity and programs available for debt financing, offering additional incentives, and making it clear to investors how they can be partners in achieving local development goals with a sustainable and impact-driven mindset.

Additional Resources

There are several comprehensive online resources to learn more about Opportunity Zones:

About the Author

Katie Kramer is a Vice President at the Council of Development Finance Agencies and has been with CDFA since 2005. She is an accomplished non-profit executive with expertise in fundraising, grant writing, operations, and building organizational capacity. In her role at CDFA, she leads the Research & Advisory Services division with a focus on creating strategic partnerships with foundations, federal agencies, and other industry non-profits aimed at growing the professional acumen of CDFA members and the development finance industry at-large.