By Venroy July, Esq.
With the passage of the Opportunity Zones legislation, many have justifiably expressed concern that the legislation will be used to subsidize gentrification. Enacted as a part of the tax overhaul, the legislation provides significant tax benefits for investment in low income or low income adjacent communities across, many of which are in predominantly black and brown neighborhoods.
Considering the country’s history of housing discrimination, redlining, and restrictive covenants, the law’s requirement of capital gains to participate has been seen as yet another tactic to exclude black and brown participation from the economic benefits that will inure through investment in these neighborhoods Notwithstanding that reality, with some creativity and collective action, here are a few ways that the Opportunity Zone legislation may be utilized for the benefit of black and brown communities:
Time on our side
We are all aware of the serious systemic barriers to accumulating wealth in this country for black and brown people. So it comes as no surprise that the Opportunity Zone legislation, as written, leaves many of these potential investors at a disadvantage. At face value, possessing capital gains is the minimum requirement to benefit from the legislation. Capital gains are generated by the sale of stock, other equity interests or assets, or by the sale of real estate (not necessarily including your primary residence, as the first $250,000 of that gain isn’t recognized as capital gain). As the majority of black wealth is tied up in their primary residence, most black and brown Americans, will not have unrealized capital gains. However, the law’s construct allows time to generate capital gains for investment by providing that investments held for 10 years may reap the law’s tax benefits until 2047. As such, there is an opportunity to generate capital gains over the short or longer term to be used for such investment.
Venroy July Esq., is a lawyer and writer for the Miles and Stockbridge Law Firm and Real Estate Blog. (Courtesy Photo)
Working Together to Build Wealth
So much of the black experience within this country is tied to the establishment and gathering of groups and organizations. Churches, Black Greek Letter Organizations, etc. have been the organizations through which many movements within our community have been built. Coincidentally, these gathering places also became meeting grounds for a concentration of upwardly mobile Black America. With the similarly stated goals of serving these communities, these organizations/meeting grounds present a unique opportunity to work with their membership, to pool resources for the acquisition and sale of assets to generate capital gains, which can then be utilized to invest in Opportunity Zones and thereby reap the immense tax benefits from such investment. Such a strategy could be effectively utilized to bring about true economic empowerment and community development in these neighborhoods by organizations that have already fostered the trust of their constituents.
Access To Capital
Greater than 50% of the Opportunity Zones are located within majority black and brown neighborhoods. While much of the excitement about the law has been related to real estate investment, the law does also provide the potential of (i) attracting capital to companies founded by black and brown founders existing in these Opportunity Zone neighborhoods and (ii) incentivizing businesses to move into previously avoided and underserved neighborhoods. The issue of access to capital for black and brown founded companies is one that cannot be overstated, with less than 1% of venture capital going to these companies. The Opportunity Zone legislation creates a new “carrot” to attract capital to these companies as the very investment could provide not only a tax deferral benefit but additional elimination of taxes owed based on the length of investment. Additionally, companies looking to raise capital may very well be incentivized to move their companies into Opportunity Zones as a means of trying to provide an additional benefit to potential investors. This may serve to provide employment opportunities for the constituents of these neighborhoods. A flow of capital into these neighborhoods, if properly managed can be utilized for the benefit of the indigenous people.
Know Your Worth
If history serves to provide lessons, one should anticipate that with the passage of the Opportunity Zone legislation, black and brown homeowners will undoubtedly receive offers for the sale of their homes that may be higher than current going rates, but which do not fully capture the future potential value of such property. While the decision as to whether to sell property owned is an individual decision that has to be made on a case by case basis, if property is in an Opportunity Zone that is getting attention a potential Seller may be in a position to add a premium to their asking price.
While concerns of gentrification are justified, through focused, strategic action, the Opportunity Zones law may be utilized for benevolent purposes by creating employment and housing opportunities, access to capital and helping to generate investment in previously under-invested neighborhoods.
Venroy July Esq., is a lawyer and writer for the Miles and Stockbridge Law Firm and Real Estate Blog. Venroy’s diverse practice and experience has seen him advise clients operating in the government contracting, transportation, cybersecurity, banking and technology industries on an array of matters including equity and asset sales and purchases, debt offerings, and licensing transactions.
The opinions on this page are those of the writers and not necessarily those of the AFRO.
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