President Joe Biden’s administration is shutting down attempts by developers to use new Census Bureau maps to claim generous tax breaks enacted by Donald Trump.
The Internal Revenue Service announced Friday that boundaries for the nation’s roughly 8,700 opportunity zones -- mainly poor areas in need of economic development -- “were established at the time they were designated and are not subject to change.”
Bloomberg News reported in February that hundreds of Census tracts underpinning the zones were altered as a part of the nation’s once-a-decade count of the population. Some of those changes came after overtures from businesses and officials interested in expanding the tax incentives to new areas, such as a portion of Pittsburgh where the National Hockey League’s Penguins are pursuing a $1 billion development project, and a sprawling logistics park outside of Baltimore where Amazon.com Inc. and Under Armour Inc. have facilities.
The IRS’s three-page announcement effectively bars investors from claiming the tax breaks on real estate or businesses they fund in the new areas.
Investors can get the incentives by selling an asset that has appreciated in value and plowing the proceeds into projects or businesses in a zone. That lets them defer taxes on capital gains through 2026. If the new asset is held at least a decade, it’s not subject to any capital gains tax when sold.
‘Big Reforms’ Sought
The IRS’s decision limits a program that Trump administration officials had planned to expand. Some critics have advocated for broader reforms.
The incentives were sold as a way to help the poor, by encouraging investment in distressed areas. But they have since been used to finance everything from luxury apartments in Houston to a Ritz-Carlton hotel in Portland, Oregon. Economists at the University of California at Berkeley recently documented how investors have gravitated toward zones that were already on the upswing.
“This is playing it safe,” Brett Theodos, a senior fellow at the Urban Institute, said of the IRS decision. The Biden administration “is embracing status quo on opportunity zones and is not undertaking the big reforms that are needed, but it’s also not expanding the program at every turn that the Trump administration did.”
By sticking with the original boundaries, the current administration avoids having to make tricky calls about where the tracts underpinning zones shrank or split because of the Census-map revisions, Theodos said.
The administration “would be hard-pressed to say the boundaries would be expanded without saying they should be shrunk where they were shrunk,” he added. “In politics, it’s very tough to take away benefits.”