Beware of the false remedy of "Opportunity Zones"

A better name might be, "Gentrification On Steroids":

President Trump has portrayed America’s cities as wastelands, ravaged by crime and homelessness, infested by rats. But the Trump administration’s signature plan to lift them — a multibillion-dollar tax break that is supposed to help low-income areas — has fueled a wave of developments financed by and built for the wealthiest Americans.

Among the early beneficiaries of the tax incentive are billionaire financiers like Leon Cooperman and business magnates like Sidney Kohl — and Mr. Trump’s family members and advisers.

Personal anecdote time: Last year my town's merchant's association held a "business social," bringing in bankers and other Very Important Persons to discuss economic growth possibilities. One of the topics I was very keen to hear about was Opportunity Zones, because we have some areas that really need a lift. But the investment advisor (woman) who presented did not even mention economic improvement, or helping marginalized citizens. It was all about how to leverage the program to reap the most financial benefits. And another quick take: The more the merrier. The more expensive the project, the more tax savings reaped. Which means, the finished product (luxury apartments, high-end retail) would be inaccessible for people on the low end of the totem pole:

“Capital is going to flow to the lowest-risk, highest-return environment,” said Aaron T. Seybert, the social investment officer at the Kresge Foundation, a community-development group in Troy, Mich., that supported the opportunity-zone effort. “Perhaps 95 percent of this is doing no good for people we care about.”

It allows investors to defer for up to seven years any capital gains taxes on the money they invest in opportunity zones. (That deferral is valuable because it allows people to invest a larger sum upfront, potentially generating more profits over time.) After 10 years, the investor can cash out — by selling the opportunity-zone real estate, for example — and not owe any taxes on the profits.

Over a decade, those dual incentives could increase an investor’s returns by 70 percent, according to an analysis by Novogradac, an accounting firm.

The tax break is largely benefiting the real estate industry — where Mr. Trump made his fortune and still has extensive business interests — and it is luring people with personal or professional connections to the president.

Bolding mine, because even if they sell at a loss, the money they made from avoiding taxes on capital gains will more than make up for said loss. And municipalities will be stuck with these behemoth luxury apartment buildings that most people can't afford to live in.

The image above was taken from an investment advisor blog, which reveals a couple of important aspects. There's a deadline of December 31st of this year to get the maximum tax break, and newly-constructed apartments and hotels are the main targets of these funds:

In order to be eligible for the 15% tax exclusion, investors must invest in a Qualified Opportunity Zone Fund by December 31, 2019. When the tax is due at the end of 2026, the investor would have held the investment for 7 years. So if you want to take full advantage of these tax benefits, you should consider selling your investment property and reinvesting the gains in an Opportunity Fund before the end of 2019!

Most Opportunity Funds invest in developing ground-up apartment buildings, office buildings, or hotels. Generally, these ground-up developments are riskier than the buy-and-hold real estate strategy or value-add projects like fixer uppers. In addition, similar to other investment strategies, an Opportunity Fund investment may increase or decrease in value over the holding period.

Don't expect any affordable housing to result from this. It's not even on their radar.

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