Opportunity zone facts for kids

An opportunity zone is a special area in the United States. These zones are set up to help places that need more investment and jobs. When people invest money in businesses or projects in these zones, they can get a special tax break. This means they might pay less capital gains tax on their profits.

The idea for opportunity zones came from a law passed in 2017 called the Tax Cuts and Jobs Act of 2017. This law was introduced by the Trump administration. Opportunity zones are a bit like "enterprise zones," which were first used in the United Kingdom in the 1980s.

What are Opportunity Zones?

Opportunity zones are specific neighborhoods or areas that have been chosen because they need economic help. The goal is to encourage people to invest money there. This investment can help create new jobs and improve local businesses.

Why Were Opportunity Zones Created?

The main reason for creating opportunity zones is to boost economic growth in areas that are struggling. The idea is that if investors get a tax break, they will be more likely to put their money into these communities. This can lead to new buildings, new businesses, and more opportunities for the people living there.

The concept of helping specific areas with tax breaks isn't new. In the United Kingdom, "enterprise zones" were created to make it easier for people to start businesses. They also offered tax incentives to encourage local investment.

In the United States, a similar program called "empowerment zones" was started in 1993. These zones allowed local governments to compete for special grants and tax incentives. Opportunity zones are the newest version of this idea, aiming to bring private investment directly into communities.

How Do Opportunity Zones Work?

Each state governor in the U.S. can choose certain areas in their state to become opportunity zones. They can pick up to 25% of the census tracts that are considered "low-income" areas. A census tract is a small geographic area used for collecting population data.

Today, there are about 8,700 opportunity zones across the United States. These zones cover areas where about 35 million Americans live.

When an investor puts money into an opportunity zone, they can delay paying capital gains tax on their profits until 2026. Capital gains tax is a tax on the profit you make when you sell something, like stocks or property, for more than you paid for it. By delaying this tax, investors can keep more of their money working for them, which encourages more investment in these zones. This helps investors lower their overall tax burden, which is the amount of tax they have to pay.

Helping Communities Grow

The hope is that by encouraging investment, opportunity zones will help improve the lives of people in these areas. New businesses can bring jobs, and new projects can improve local services and infrastructure. It's a way to use tax incentives to direct private money towards community development.