special investment tax treatment under new federal law

Maryland nominates 149 ‘Opportunity Zones’ to get special investment tax treatment under new federal law

State officials announced Friday that they have selected 149 low-income areas around the state to get special investment benefits under the federal tax overhaul that passed last year.

Investors would be able to money into housing and businesses in the so-called “Opportunity Zones” and pay less tax on any capital gains. The program is only a small piece of the huge federal tax law that the Republican Congress passed last year in Washington, but federal and state officials think it could have a big impact in struggling communities.

State Housing Secretary Kenneth Holt said the zones “will be a game-changer for Maryland.”

“I’m excited to establish these zones and further leverage private, nonprofit and public sector funds, providing new opportunities for housing, retail and business growth to fuel the state’s economic engine and create jobs,” Holt said in a statement.

While supporters of the idea say it will draw capital into areas that are struggling, some analysts have cautioned that it will fuel gentrification and lead to money flowing into neighborhoods that have already started to take off as investors seek to maximize their gains.

The zones, which have to be approved by the U.S. Treasury Department, are scattered across the state.

Much of East and West Baltimore has been nominated. So has Park Heights and huge swathes of south Baltimore including parts of Port Covington, where Under Armour founder Kevin Plank has proposed building a mixed-use project from scratch.

In addition, the zones would be established around Fort Meade, Aberdeen Proving Ground and the Indian Head naval facility. The state also has targeted an area of Montgomery County near where it wants to locate Amazon’s second headquarters and parts of Cecil County where officials are encouraging distribution centers to open up.

Remote parts of the state also would stand to benefit, with the state picking large parts of Garrett and Somerset counties to be zones.

Michael White, chief of staff at the Maryland Department of Housing and Community Development, said officials sought to choose areas where other programs are already available to investors in the hope of making them especially attractive. White said officials consulted with local politicians, developers and others with a stake in the program.

“We were really trying to look at areas that would get real investment,” he said.

Investors who put their money into the zones and don’t cash out their investment for 10 years would avoid paying capital gains tax on any increase in value. They also would be able to put money that hey currently face having to pay capital gains tax on into the zones to gain additional benefits.

An example provided by the Economic Innovation Group, a think tank that supports the idea, indicates investors could make significant gains. Someone who put $100 of unrealized capital gains into an Opportunity Zone this year and left it there for 10 years would stand to get $176 back compared to $132 if they invested in stocks.

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