On Wednesday, Jan. 29, WEDA testified before the Senate Agriculture, Revenue and Financial Institutions Committee in favor of Senate Bill 440. The legislation would enhance Wisconsin tax benefits under the federal Opportunity Zones program encourage Wisconsin investors to keep their wealth in Wisconsin and drive much-needed private capital to communities across the state.
The bill, which WEDA helped develop with key lawmakers, is one of our top legislative priorities in the 2019-20 legislative session.
The program was created by Congress in 2017 to attract private capital and spur investment and job creation in the country’s most economically distressed communities.
Under the program, low-income community census tracts were used to determine eligible Opportunity Zones. Wisconsin has 120 Opportunity Zones, which are in every congressional district, 44 different counties and 60 municipalities across the state.
The program utilizes tax incentives to drive investment to impactful projects in capital starved communities. In exchange for investing in Opportunity Zone projects through qualified Opportunity Funds, investors are eligible for the following tax benefits:
- Temporary tax deferral – until December 31, 2026 – for capital gains reinvested in an Opportunity Fund.
- Reduction of their tax bill on the deferred capital gains by 10% if the investor holds their Opportunity Fund investment for at least five years. This reduction increases to 15% for investors that hold the investments for at least seven years.
- Exclusion from taxes on any gains realized from the investment in the Opportunity Fund, if the investor holds the investment for at least ten years.
Ultimately, the Opportunity Zones incentive aims to unlock billions of dollars in unrealized capital gains for reinvestment in Opportunity Zone projects, which include commercial and residential real estate development as well as business expansion and creation.
In 2018, Wisconsin incorporated the federal Opportunity Zones tax provisions into state law, which means the deferral and exclusion treatments apply to state income taxes.
Senate Bill 440 would double the Opportunity Zones capital gains tax reduction at the state level for investors who invest in Wisconsin Qualified Opportunity Funds – funds that hold at least 90% of their assets in Wisconsin Opportunity Zones. Under the bill, investors would we eligible for a 20% state capital gains tax reduction if they hold their investment in a Wisconsin Qualified Opportunity Fund for at least five years, and a 30% reduction after seven years.
The legislation will encourage Wisconsin investors to keep their investment dollars in Wisconsin, funneling much-needed capital to communities in both rural and urban parts of the state. It could also play a significant role in driving the development of much-needed workforce housing. As you know, Wisconsin’s workforce housing crisis is a major contributing factor to the state’s labor shortage, which remains the largest challenge facing Wisconsin employers.
