A component of federal tax reform passed last year includes newly designated “opportunity zones” designed to attract investment into areas of blight by deferring or completely waiving capital gains taxes — effectively expanding on the Section 1031 exchange rules that allow for deferral of capital gains inside of real estate.
The program operates somewhat like the well-known EB5 program, which uses access to a green card and a fast track to U.S. citizenship as bait to attract foreign capital. It differs mostly in its focus on attracting domestic U.S. capital into U.S. cities where it’s most needed. An October report about how the program will operate seems to have brought enough clarity to build momentum.
One key characteristic of opportunity zones is that 20 percent of the population must be under the poverty level and the median income may not exceed 80 percent of the metro or state level. The tax benefits extend all the way to 2028, fitting a longer-term real estate or business investment profile. Details of the program can be found here. An interactive map shows much of Snohomish County qualifying, with the entirety of downtown Everett included.
The Everett and Snohomish County real estate markets are well positioned these days. Attractive and somewhat undiscovered by outside investors is Everett’s downtown, where Funko recently found a home and other businesses spotting access to commercial passenger service at Paine Field are now sniffing aroundfor opportunities. Layering on another incentive in the form of the new opportunity zones is perfectly timed as it greases the skids for investors to respond to new demand right when it’s taking a look.