Use of the Opportunity Zone Tax Incentive: What the Tax Data Tell Us

29 Pages Posted: 28 Dec 2022

See all articles by David Coyne

David Coyne

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Craig E. Johnson

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Date Written: November 22, 2022

Abstract

The Tax Cuts and Jobs Act (TCJA) of 2017 created the opportunity zone (OZ) tax incentive as a means of spurring economic growth and job creation in low-income communities. The OZ tax incentive provides capital gains tax relief for taxpayers who make a qualified investment in a Qualified Opportunity Fund (QOF), which in turn invests substantially all its assets in an OZ. The Treasury Department designated 8,764 census tracts as OZs in 2018 that had been nominated by each state, possession, and the District of Columbia. To be eligible for nomination, a census tract needed to either be a low-income community or contiguous to a low-income community. This paper uses information reported on Form 8996 for tax years 2018 through 2020 and Form 8997 for tax years 2019 and 2020 to provide an early look at the ability of the OZ tax incentive to attract investment to designated areas. We analyze the distribution of investments across OZs and identify which type of OZs have so far attracted investment through QOFs. We also study the characteristics of taxpayers (individuals, corporations, and pass-through entities such as partnerships) that invest in QOFs.

Keywords: Opportunity Zones, tax incentives, place-based policy

JEL Classification: H24, H25, O23, R12, R38

Suggested Citation

Coyne, David and Johnson, Craig E., Use of the Opportunity Zone Tax Incentive: What the Tax Data Tell Us (November 22, 2022). Available at SSRN: https://ssrn.com/abstract=4308263 or http://dx.doi.org/10.2139/ssrn.4308263

David Coyne (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Craig E. Johnson

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

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