As a baby born in the bottom 20% income scale in Detroit, you are 50% less likely to make the top 20% income scale than a child in San Francisco. One way to increase your probability of making the top 20% income bracket would be to move. However, American citizens decreasing willingness to pick up sticks and move states, has led to the key US government objective of increasing income in the less fortunate areas.
Tax Break on Capital Gains
‘Opportunity Zones’ have been created with the goal of meeting the challenge of improving the fortunes of less wealthy states. This was a component of Donald Trumps tax-cutting laws in 2017. The scheme works to lure money into deprived places by offering the incentive of a large tax break on unrealized capital gains invested in them.
The amount of unrealized gains held by American households and firms is thought to be amounting to as much as $6trillion, with opportunity zone investments held for more than a decade capable of eliminating capital gains tax altogether.
Who is within the capital gains tax relief?
There are over 8,761 zones including within the opportunity zone tax break, making 12% of America’s census tract.
The effect so far of the tax break appears to be promising, with the sales of property development sites within the zones jumping by 80% in just 9 months.
Limitations of the capital gains tax relief
Although, there is many clear benefits to the tax break scheme, the scheme has several concerns. Namely, although the named opportunity zones meet the income scale requirement, this does not necessarily mean it is the most in-need area of investment. For example, students can massively lower in income scale of a state, but this does not mean the surrounding areas of Harvard and Stanford are in need of heavy investment.