New York state’s recent $212 billion budget was recently passed by lawmakers, which includes a provision that will walk back the tax benefits to real estate investors developing properties in opportunity zones. The Opportunity Zone initiative was part of the federal 2017 tax overhaul, which gave incentives for developers to invest in lower income areas around the country.
However, the initiative has drawn significant criticism since its inception, which we’ve outlined previously. New York’s plan to remove the opportunity zone tax break from its tax code would no longer allow investors to defer NYC state and city capital gains taxes, an incentive that was supposed to spur development in areas in need of them. Instead, the program has been abused in many cases, as investment’s been funneled into already gentrifying neighborhoods and areas with higher median incomes. (nysenate.gov, 2021)
Senate Majority Leader Mike Gianaris, the one behind the budget bill provision, said the decoupling would save the state $63 million each year. The term “decoupling” here refers to the fact that investors would still be eligible for the federal tax benefits, while no longer eligible for the state and city tax breaks. (nydailynews.com, 2021)
New York will now join Massachusetts, North Carolina, Mississippi, and California, states which have also decoupled their state tax policies from the federal opportunity zone initiative. (therealdeal.com, 2021)