Opportunity Zones
What are Opportunity Zones?
Opportunity Zones are a new community development initiative established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income urban and rural communities nationwide. The Opportunity Zones initiative provides a tax incentive for investors to re-invest their capital gains into Opportunity Funds that are dedicated to investing into Opportunity Zones.
As part of our Community-Based Economic Development (CBED) program this website is designed to serve as an information and facilitation platform for Hawaiʻi’s Opportunity Zones. Continual updates will be made with materials for investors (Opportunity Funds), those with projects (businesses and real estate developers) and business service and advisory organizations (accounts, lawyers, real estate brokers, and financial advisors).
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Opportunity Zones Program
The recently passed Federal Tax Cuts and Jobs Act of 2017 authorized a community economic development program called the Opportunity Zones Program. This initiative provides incentives for investors to re-invest realized capital gains into Opportunity Funds in exchange for temporary tax deferral and other benefits. The Opportunity Funds are then used to provide investment capital in certain low-income communities, i.e., Opportunity Zones.
Benefits to Investors
- A temporary tax deferral for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the Opportunity Zone investment is sold or December 31, 2026.
- A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis of the original investment is increased by 10% if the investment in the qualified Opportunity Zone fund is held by the taxpayer for at least 5 years, and by an additional 5% if held for at least 7 years, 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 a qualified Opportunity Zone Fund if the investment is held for at least 10 years. (Note: this exclusion applies to the gains accrued from an investment in an Opportunity Fund, not the original gains).
Additional Incentives
All the Opportunity Zones in Hawaiʻi overlay with other economic development initiatives such as New Market Tax Credits, Enterprise Zones and Transit Orient Development (TOD) Zones. There are also many other non-census tract-based programs that can be applied such as Low-Income Housing Tax Credits (LIHTC). Additionally, there may be synergies between investors and their missions and the major property holders and businesses in an Opportunity Zone.
25 Census Tracts Designated as Opportunity Zones
Hawaiʻi designated 25 census tracts as Opportunity Zones as part of the new federal community development program established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income urban and rural communities nationwide. Its stated purpose is to encourage entrepreneurship and expansion capital for economically distressed areas of the country.
The Hawaiʻi Opportunity Zone's GIS Map
View the interactive Hawaiʻi Opportunity Zones Map
Here is a list of the Opportunity Zones by census tract for the State of Hawaii and downloadable maps by county:
Factsheets on Hawaiʻi’s Opportunity Zones
- Hilo Area – Opportunity Zones Factsheet
- Kona Area – Opportunity Zones Factsheet
- Honolulu Area, Aiea – Waipahu Neighborhoods- Opportunity Zones Factsheet
- Honolulu Area, Downtown – Chinatown – Kalihi Neighborhoods – Opportunity Zones Factsheet
- Honolulu Area, Aloha Stadium – Opportunity Zones Factsheet
- Honolulu Area, Kalaeloa – Opportunity Zones Factsheet
- Kahului Area, Maui – Opportunity Zones Factsheet
- East Molokai – Opportunity Zones Factsheet
- Kauai coming soon!
Events
HI OZ Investment Ready Program
If you have a project in an OZ or if you would like to start a project in an OZ, DBEDT would like to hear from you! We are particularly interested in projects that have positive community economic benefits. Qualified businesses and projects will have the option to participate in the HI OZ Investment Ready Program. The program includes completing a HI OZ Business Profile to be made available to OZ Funds through the DBEDT website.
For more information, please contact Mark J. Ritchie, Branch Chief, Business Support Branch at mark.j.ritchie@hawaii.gov or (808) 587-2785.
Update on Understanding Hawaii’s Opportunity Zones
For program presentations, please view resources below.
Resources
- Economic Innovation Group – EIG is a bipartisan public policy organization addressing America’s most pressing economic challenges.
- Novogradac & Company LLP – Novogradac is a national professional services organization that consists of affiliates and divisions providing professional services that include certified public accounting, valuation and consulting with more than 25 offices nationwide.
- Department of the Treasury, Community Development Financial Institutions Fund – The Community Development Financial Institutions Fund (CDFI Fund) plays an important role in generating economic growth and opportunity in some of our nation’s most distressed communities.
- Council of Development Finance Agencies – The Council of Development Finance Agencies is a national association dedicated to the advancement of development finance concerns and interests. CDFA is comprised of the nation’s leading and most knowledgeable members of the development finance community representing hundreds of public, private and non-profit development entities.
- White House Opportunity and Revitalization Council “Completed Program Targeting Actions” – There are numerous Federal agencies that are offering Opportunity Zone benefits (bonus points, preference points, priority consideration or special consideration) associated with their programs including grants and other funding. Additional resources can be found on the HUD Opportunity Zones website.
Opportunity Funds
State Benefits
Businesses which satisfy annual requirements will qualify for the following State tax benefits for up to seven consecutive years:
- 100% exemption from the General Excise Tax (GET)
- The GET exemption applies only to revenues from EZ-eligible activities
- Licensed contractors are also exempt from GET on construction done for an EZ enrolled business at their EZ company site
- An 80% non-refundable State income tax credit the first year
- This non-refundable credit goes down 10% each year for 6 more years – ending at 20%
- An additional non-refundable income tax credit equal to 80% of annual Unemployment Insurance premiums the first year
- This non-refundable credit goes down 10% each year for 6 more years – ending at 20%
NOTE: The two non-refundable income tax credits combined may not exceed 100% of income tax owed to the State.
County Benefits
Each county offers eligible businesses additional benefits.
Honolulu County
- Two-year exemption from any increase in property taxes resulting from new construction by EZ firms at their EZ sites
- Waiver of building and grading permit fees for enrolled EZ firms
Hawaiʻi County
- Three-year exemption from any increase in property taxes resulting from new construction by EZ firms at their EZ sites
Kauai County (Kauai & Niihau)
- Priority business permit processing
Maui County (Maui, Lanai, and Molokai)
- Priority business permit processing
Additional options for Manufacturing and Agricultural Businesses:
- EZ tax credits and exemptions may be extended for businesses engaged in the manufacturing of tangible personal property or in the production or processing of agricultural products, for an additional three years
- Allow the receipts and sales of a business’s establishment in all enterprise zones located within the same county to count towards qualification requirements.
IRS Guidance
Companies must meet the following requirements:
- Your company must reside in one of the EZ locations
- At least half of a firm’s annual gross income must be from one or more of the following activities:
- Agricultural production or processing
- Manufacturing
- Wholesaling/Distribution
- Aviation or maritime repair or maintenance
- Telecommunications switching and delivery systems
- Information technology design and production
- Medical research and clinical trials
- For-profit training programs in international business management or environmental remediation
- Biotechnology research, development, production, or sales
- Repair or maintenance of assisted technology equipment
- Certain types of call centers
- Wind energy producers
Other businesses are not eligible, including retailers and some professional services. Contractors (firms which build, maintain, or repair real estate, such as custodial, construction, painting, electrical, and plumbing firms) also are ineligible to enroll in the EZ program.
Update On Understanding Opportunity Zones in Hawaiʻi Seminar
On October 17, 2019 DBEDT and partner organizations, Hawaiʻi Society for Certified Public Accountants (HSCPA) and the Hawaiʻi Community Reinvestment Corporation (HCRC) took a deep dive into the tax, legal and business details of investing in Hawaiʻi’s Opportunity Zones (HI OZ), a community development program authorized by the recently passed Federal Tax Cuts and Jobs Act of 2017. This tax initiative provides incentives for investors to re-invest capital gains into Opportunity Funds in exchange for temporary and long-term tax deferral and other benefits. The Opportunity Funds are then used to provide investment capital to economically challenged communities, i.e., Opportunity Zones. National experts covered all aspects of this federal initiative to direct investment capital into economically challenged areas of the state. This seminar was designed for CPAs, lawyers, bankers, real estate brokers, potential investors, and financial advisors. Also, this seminar addressed many questions of business owners and real estate developers who are considering seeking an Opportunity Fund investment. For more information, please download the program and presentations:
- Update on Understanding Opportunity Zones program
- DBEDT Presentation
- Hawaiʻi Community Reinvestment Corporation Presentation
- Keynote Presentation
- Colliers International Presentation
Understanding Opportunity Zones in Hawaiʻi Seminar
On October 4th, 2018 a half day seminar in Honolulu was held titled “Understanding Opportunity Zones in Hawaiʻi.” The event was co-sponsored by DBEDT, Hawaiʻi Community Reinvestment Corporation, and the Federal Reserve Bank of San Francisco.
Almost 200 people attended the event and joined the conversation exploring possibilities for Opportunity Zones in Hawaiʻi. Local and national experts (including Maurice Jones of LISC and a Brent Parker from Novogradac & Company) spoke and focused on what we know so far about how this new tax incentive can be used and the roles regional stakeholders can play to ensure the benefits of this investment vehicle are broadly shared. Here are the presentations:
Contact
For questions related to Hawaiʻi Opportunity Zones, please contact:
Mark J. Ritchie
Branch Chief, Business Support Branch
Business Development and Support Division
State of Hawaiʻi, Dept. of Business, Economic Development & Tourism
P.O. Box 2359
Honolulu, HI 96804
Phone: 808-587-2785 Fax: 808-586-2589
mark.j.ritchie@hawaii.gov