What are opportunity zones and how can they affect you?
Opportunity zones seem to be gaining more traction and momentum in today’s real estate market. So what are opportunity zones and how can they affect you?
Hi, I’m Shemeika Fox, your Santa Cruz real estate expert and your personalized real estate concierge. Opportunity zones are an economic development tool that allows people to invest in distressed or low income areas in the United States. The purpose is to spur economic growth and job creation in low income communities while providing tax benefits to the investors.
Opportunity zones were created under the Tax Cuts and Job Act of 2017. Thousands of low income communities in all 50 states, the District of Columbia and five U.S. territories are designated as qualified opportunity zones. Taxpayers can invest in these zones through qualified opportunity funds. Opportunity zone tax incentives include a temporary deferral of inclusion and taxable income for capital gains reinvested into an opportunity fund. The deferred gain must be recognized on earlier of the date on which the opportunity zone investment is disposed of or December 31st, 2026, a step up in basis for capital gains reinvested in an opportunity fund.
The basis is increased by 10% if the investment in the opportunity fund is held by the taxpayer for at least five years, and by an additional 5% if held for at least seven years, thereby excluding up to 15% of the original gain from taxation. A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an opportunity fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an opportunity fund.
I recently read an interesting article in RisMedia. It highlights the effects and impacts of opportunity zones, and I believe you’ll find it quite enlightening as I did. Homes in opportunity zones across the country experience price gains in the second quarter of 2022 that largely kept pace with growth in the broader housing market according to newly released data from ATTOM, a data curator which analyzed 5,198 different zones. Opportunity zones are defined as census tracks in or alongside low income neighborhoods that meet various criteria for redevelopment in all 50 states. Median single family home and condo prices rose 63% of opportunity zones around the nation in the second quarter just shy of the 69% growth experience in the census tract outside of opportunity zones. Typical values also increase by at least 20% year over year in about half of the zones with enough data to analyze. Additionally, median values increase in about half the opportunity zones by more than 8.8% in the second quarter and by 15.3% year over year. These price spikes inside opportunity zones indicate high buyer demand combined with decreased housing supply, which is at a historic low. Could have priced many households out of more upscale neighborhoods and into lower price markets.
Check out the key findings. Median home prices rose by at least 25% in 39% of opportunity zones. The West had the largest portion of zones where median prices rose year over year. Utah, Arizona, and Nevada experience gains in over 90% of opportunity zones. Median values range from $200,000 to $299,999 in 22% of the zones, while they top the nationwide second quarter median of $346,000 in 23%. The Midwest retained the distinction of having the highest portion of least expensive opportunity zone tracks, followed by the northeast, the south, and the west respectively. Median household incomes in 87% of the opportunity zones analyzed were less than the medians in the counties where they were located.
The takeaway: “Homes in most opportunity zones represent affordable options for real estate investors and consumer home buyers in a market where both home prices and mortgage rates have been rising,” said Rick Sharga, Executive Vice President of Market Intelligence at ATTOM. “With home prices up 15% compared to a year ago and mortgage rates nearly doubled, both investors and home buyers may find the lower purchase prices for homes available in opportunity zones very attractive. Demand continued into the spring buying season even as home mortgage rates rose in the second quarter to nearly 6%, gasoline and other fuel costs soared, inflation shot up 40-year highs, and economic uncertainty across the country increased.”
Of course, we are always looking for a good deal on real estate, especially right here in Santa Cruz County where it can be quite expensive.
The opportunity zones located within Santa Cruz are noted as followed. The unincorporated area of the county has two opportunity zones located in the Pleasure Point and Live Oak areas. And the City of Santa Cruz has two opportunity zones located in the Downtown and Beach Flats area. The City of Santa Cruz has two census tracks that have been designated as opportunity zones. These tracks are adjacent to each other and bounded by Mission Street and Bay Street to the West, Lincoln Street, Soquel Avenue, and the St. Lorenzo River to the east and the Monterey Bay to the south. Census Track 1008 is bounded by the San Lorenzo River to the West, Water Street to the North, Seabright Avenue to the East, and Murray Street to the South.
If you would like to learn more about opportunity zones or to confirm if your property lies within an opportunity zone, please feel free to reach out for a complimentary, confidential consultation. I’m Shemeika Fox, your Santa Cruz real estate expert and your personalized real estate concierge. And as always, I’m here to help. Make it a great day.
