The federal Opportunity Zones program was designed to incent public and private stakeholders to work together to rebuild American cities. Eligible investors who make qualified investments within those zones may be eligible for significant capital gains tax benefits.
Seventy-two urban and suburban areas across Connecticut have been federally designated as Opportunity Zones. Connecticut’s state government and its 27 municipalities with designated Opportunity Zones are eager to leverage this program to encourage investments in Connecticut. Together we are committed to helping developers, investors and communities alike to maximize the benefits of this program.
Opportunity Zones provide substantial tax benefits to investors who move any realized capital gains into a qualified Opportunity Zone Fund within 180 days of the asset sale. In turn, these Opportunity Zone Funds may invest in qualifying businesses, real estate or infrastructure substantially located within a federally designated Opportunity Zone. Check out this interactive map of Connecticut’s Opportunity Zones and some highlighted projects.
In exchange for their investments, Opportunity Zone Fund investors may be able to decrease their federal tax burden through the preferential treatment of capital gains — in three key ways.
- First, any capital gains on the money reinvested in an Opportunity Zone Fund will be temporarily deferred.
- Furthermore, the taxes on those capital gains may be reduced if the Opportunity Zone investment is held for at least 5 years — and even further reduced if held at least 7 years.
- Finally, any capital gains on the Opportunity Zone investment itself can even be eliminated — if the investment is held at least 10 years. You’ll find more details on how these federal tax benefits work here.
If an equity investment in a qualified project must be liquidated before the 10-year investment period is over, the Opportunity Zone Fund can reinvest in another qualified business or project.
Anyone can form their own Opportunity Zone Fund. The process for doing so is described in this IRS overview.
Investors can also participate in this program through other Opportunity Zone Funds. New ones are being established all the time including several in Connecticut — and can be found through a web search.
Types of Eligible Projects
Opportunity Zone Fund investors are only eligible for the tax benefits if the fund invests in qualifying projects within Opportunity Zones. View map of Connecticut’s Opportunity Zones. These projects may include the following.
Real estate projects. Real estate projects should either be new development or an existing building in need of substantial renovation. Qualified real estate investments can include multi-family and single-family housing, commercial, retail, industrial and mixed-use developments.
Businesses. Business investments can include any growing business that is willing to take equity investors either as control or non-control positions. Businesses should operate within the Opportunity Zone (at least 70% of their operations) and derive most of their revenues from sales within Opportunity Zones (at least 50% of their sales).
Energy-related projects. Energy efficiency and renewable energy projects can also qualify and may derive their appreciation value from reliable long-term cash flow.
To learn more about Opportunity Zones, we encourage you to listen to this podcast from former DECD Deputy Commissioner David Kooris.