On March 21, 2018, Governor Ivey announced Alabama’s Opportunity Zones by submitting eligible census tracts to the U.S. Treasury Department for certification. A detailed map of the submitted Alabama Opportunity Zones can be found here. Alabama has created 158 Opportunity Zones using the maximum number of census tracts under the new law, which span each of Alabama’s 67 counties to allow every county to benefit from this new economic development program.

 As discussed in more detail in Opportunity Zones: Tax Reform’s New Economic Development Tool, the Opportunity Zones program was created by Congress as part of the 2017  Tax Cuts and Jobs  Act as a new tax incentive, designed to deploy capital gains to distressed communities. Generally, each state may designate up to twenty-five percent of its eligible low-income census tracts to be designated as qualified Opportunity Zones, including a limited amount of adjoining census tracts. Each state governor was required to submit their Opportunity Zone nominations to the U.S. Treasury Department by Wednesday, March 21, 2018, unless the governor requested a thirty day extension. 

The next step in the deployment of this powerful economic development tool is for the U.S. Treasury Department to promulgate rules on creating and operating an Opportunity Zone Fund (an “OZ Fund”).  The OZ Fund serves as the mechanism for deploying invested capital gains into the distressed communities.  Investors in an OZ Fund are granted the following tax incentives by the Internal Revenue Service:

• A temporary tax deferral for any realized, but not recognized, capital gains reinvested into an OZ Fund;
• A step-up in basis for capital gains reinvested in an OZ Fund, if the capital gains are kept in the OZ Fund for a statutorily-prescribed amount of time; and
• A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an OZ Fund if the investment is held at least ten years.