On October 19th, the U.S. Treasury Department issued proposed regulations regarding Opportunity Zones and Qualified Opportunity Funds (QOFs). Investors have questioned whether Opportunity Zones and QOFs that invest in these zones would be viable investments. In this report, we discuss the proposed regulations to date and the viability of the investment vehicles for investors with taxable capital gains. Our analysis suggests the following:

  • For investors looking to have an impact on poverty in America, QOFs may be a good way to help lift the local economy of impoverished areas, although the potential impact of the program won’t be known for many years.
  • QOFs may be worthwhile for investors looking to unlock unrealized capital gains and invest in new vehicles that may produce a reasonable return.
  • However, key details of the program still need to be addressed by the Treasury. Given the plan’s finite timeframe for offering capital gains tax relief, hopefully the Treasury will address unanswered questions soon.

Questions include:

  • Will the regulatory framework bias tax benefits towards real estate investment versus operating businesses?
  • Will investments end up concentrated in urban areas instead of reaching struggling rural communities?
  • Are some Opportunity Zones not actually in economically distressed areas?
  • Will funds be allowed to recycle and reinvest capital from asset to asset, an important characteristic for major wealth managers?
  • For impact investors, will data be so sparse or even questionable that trying to understand the impact of the investments is impossible?

Download our full report here.