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Opportunity Zones: Aligning Public and Private Capital

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Opportunity Zones: Aligning Public and Private Capital

At the end of 2017, a potential $6.1 trillion in unrealized capital gains was available for reinvestment.

Throughout the U.S., unrealized capital gains have significant tax implications with enormous potential. Unrealized capital gains occur when the value of an asset has gone up on paper, but has not yet been sold for a profit. Taxes are triggered once the asset has been sold.

Investors can offset or defer these taxes in a few ways, including one new strategy: investing in opportunity zones.

Today’s infographic from Bedford Funds explains what opportunity zone funds are, their core benefits, and their potential impact across the country.

What is an Opportunity Zone?

Opportunity zones are U.S. Census tracts whose citizens experience economic distress.

Originating in the 2017 Tax Cuts and Jobs Act, they offer the potential to connect long-term capital with low-income communities across the country to drive return and impact.

How are opportunity zones chosen? The initial base is low-income census tracts, which have:

  • Poverty rates of at least 20%; or
  • Median family incomes lower than 80% of the surrounding area

The state’s governor or chief executive then nominates up to 25% of these areas as opportunity zones. Nationwide, a total of 8,700 opportunity zones exist, and 7.9 million of the areas’ residents live in poverty.

Overall, 35 million people live in these opportunity zones. There are a number of disparities between opportunity zones and notional averages across key variables:

Poverty RateMedian Family IncomeEducation*
Opportunity Zones27.1%$47,31618.1%
National Average14.1%$73,96531.5%

*Adult with Bachelor’s degree or higher

It’s evident these cities could benefit from increased investment.

What is an Opportunity Zone Fund?

An opportunity zone fund (OZF) is an investment vehicle that provides tax benefits for private capital to help revitalize economically distressed communities. Both operating businesses and real estate are eligible for investment.

Many investor types may take advantage of opportunity zone funds:

  • Corporations– Also includes partnerships
  • Accredited investors– Defined as high net worth individuals, brokers, and trusts
  • Nonresident foreign investors– Only on capital gains earned in the U.S.
  • Retail investors– Through funds that have lower minimums, though options are more limited

In addition to their wide eligibility, OZFs have a number of potential benefits.

Benefits

Tax breaks on capital gains can be organized into three tiers:

  • Initial Tax Deferral– Once the previously-earned capital gains are channeled into a qualifying OZF, federal tax is deferred until December 31, 2026 or the date the investment is sold— whichever comes sooner
  • Step-Up In Basis10% of the original capital gains will be excluded from federal taxes if an investment is held for five years
  • Capital Gains Tax Exclusion– Federal tax on capital gains earned within the OZF is 100% eliminated if an investment is held for 10 years

All things being equal, OZFs realize after-tax outcomes that are over 40% higher than a standard portfolio investment. For example, the potential after-tax value of a $100 investment after a 10-year holding period would be as follows.

Initial InvestmentNet after-tax value
OZF$100$175.30
Standard portfolio investment$76.20 ($100- 23.8% capital gains tax)$132.36

*Note: assumes long-term federal capital gains tax rate of 23.8%, no state income tax, and annual appreciation of 7% for both the OZF and alternative investment.

While it takes a few years to realize these tax benefits, OZFs have long-term horizons to encourage sustained investment with a lasting impact. The result is the potential for sustainable and equitable wealth creation.

Future Impact

Although real estate investments have captured significant attention, recent regulation has clarified that operating businesses are also eligible OZF investments.

By investing in businesses, OZFs can have a direct impact on economic growth and job creation.

Ultimately, OZFs have the potential to catalyze collective impact through their scalable operating company and real estate investments. Working directly with community leaders, OZFs can help drive long-term rejuvenation from within, versus gentrification from outside forces.

Opportunity zone funds are projected to raise $44 billion in capital designed specifically to invest in this future growth.

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Money

Mapping Credit Card Delinquency Rates in the U.S. by State

Which states have the lowest credit card delinquency rates in America, and which have the highest?

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mapping credit card delinquency rates in the U.S.

Credit Card Delinquency Rates in the U.S. by State

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Credit card debt carries a hefty bill in America, and falling behind on payments can be extremely costly for cardholders.

This graphic shows credit card delinquency rates across 50 U.S. states, as of Q3 2023. This data comes from a WalletHub study published in January 2024.

Which States Have the Lowest and Highest Delinquency Rates?

Credit card delinquency is when a cardholder falls behind on required monthly payments. Credit agencies are often notified after two months of delinquent payments.

WalletHub examined proprietary user data on the average number of delinquent credit card tradelines—also known as credit accounts—across states. Here they are from lowest to highest:

RankStateShare of Credit Card
Tradelines Delinquent (%)
1Iowa12.9
2Massachusetts13.9
3Hawaii13.9
4Rhode Island14.7
5Washington14.7
6Florida14.8
7New York14.9
8California15.1
9New Hampshire15.5
10Alaska15.6
11New Jersey15.6
12Colorado15.7
13Utah15.8
14Vermont16.1
15Montana16.1
16Illinois16.5
17Oregon16.6
18Idaho17.0
19Ohio17.5
20Connecticut17.8
21Maine18.0
22Nebraska18.1
23Wyoming18.1
24Maryland18.4
25Kansas18.4
26Wisconsin18.5
27Virginia18.7
28Nevada19.1
29South Dakota19.3
30Arizona19.8
31Minnesota19.8
32Pennsylvania20.2
33Michigan20.9
34North Dakota21.3
35Delaware21.4
36Missouri22.4
37New Mexico22.6
38Georgia23.1
39North Carolina24.0
40Indiana24.3
41Texas24.7
42West Virginia25.2
43Tennessee26.2
44South Carolina26.9
45Kentucky27.6
46Oklahoma28.2
47Arkansas30.1
48Alabama30.5
49Louisiana31.7
50Mississippi39.1

No state had credit delinquency rates of less than 10%, with Iowa coming the closest at 12.9%.

That puts Iowa ahead of wealthier states like Massachusetts (13.9%), Washington (14.7%), and New Hampshire (15.5%).

At the bottom end was Mississippi, which had 39% credit delinquency rates to end 2023. That’s well ahead of the next-lowest states Louisiana (31.7%) and Alabama (30.5%).

It’s notable that the American South had higher rates of delinquency almost across the board. The five states with the highest rates of credit card delinquency are all located in the southeastern region of the country, and Texas had a higher delinquency rate (25%) than other majorly populated states like Florida (14.8%) and New York (14.9%).

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