Gov. Ivey Nominates 158 Census Tracts as Alabama Opportunity Zones

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Yesterday, Gov. Kay Ivey designated 158 qualifying low-income or distressed census tracts within Alabama as Opportunity Zones (OZ) under the new OZ program created by the Tax Cuts and Jobs Act, which defers and potentially excludes certain capital gains recognized by taxpayers if the proceeds are reinvested in businesses or property located in the OZ. The governor’s website has a list of each OZ by county and a map showing the approximate locations.

According to the governor’s press release, “[t]hese zones were selected through a deliberative process to ensure that Alabama communities get the most benefit out of the designation. Designation as an [OZ] may have transformative benefits for communities that have largely missed out on the gains of the national economic recovery.” It is anticipated that the U.S. Treasury will certify Gov. Ivey’s nominations within the next 30 days.


Before summarizing the requirements, here is a brief list of potential tax benefits from investing in the OZ program:

  • Tax Deferral – Investments of capital gains in a Qualified Opportunity Fund (“QO Fund”) will receive a deferral of the gain until the earlier of the date on which the investment in the QO Fund is sold or December 31, 2026. Note that the entire proceeds from the sale do not have to be invested, only the gain that the investor seeks to defer.
  • Stepped-Up Basis – Capital gains that are invested in a QO Fund will receive a step-up in basis if the QO Fund investment is held for the following holding periods: 10 percent increase in basis for a five-year investment, and 15 percent total increase in basis for a seven-year investment.
  • Exclusion of Capital Gains from Income – If the investment is held for a minimum of 10 years, the taxable income of the capital gains of such investment in a QO Fund is permanently excluded from income. However, this exclusion only applies to the appreciation from the QO Fund investment and not to the original capital gains that were originally contributed to the QO Fund, which are only eligible for the stepped-up basis.


Each QO Fund will be a private investment vehicle, either organized as a partnership or a corporation, which must invest at least 90 percent of its capital in qualified opportunity zone businesses or property. QO Funds must be certified by the U.S. Treasury (likely through the CDFI Fund), although regulations detailing the certification process are not yet available. Unlike the New Markets Tax Credit Program (“NMTC”), there is no cap for the amount that may be invested into a QO Fund or for the number of QO Funds that may be certified under the Opportunity Zone Program.

The QO Funds are permitted to invest in a wide variety of businesses and property located in the OZ. Specifically, a qualified OZ business includes all trades or business other than the following: the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, race track or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.  Similar to the NMTC program, the qualified business must also derive at least 50 percent of its gross income from the active conduct of such business within the OZ and must not hold more than 5 percent of its assets in nonqualified financial property (i.e., cash and cash equivalents).

Other than the above, there is no limit on the asset classes in which the QO Fund capital may be invested. The QO Funds are likely to provide opportunities for investment in commercial real estate, manufacturing and industrial facilities, venture capital and angel-funded business, innovation districts, low-income housing developments, and other development or redevelopment efforts in the 158 census tracts in Alabama designated by Gov. Ivey as an OZ.