This April, the United States Treasury announced it approved 14 different neighborhoods on St. Croix and St. Thomas as being Qualified Opportunity Zones, meaning they are eligible for federal tax breaks under the Tax Cuts and Jobs Act, passed by Congress and signed into law by President Donald Trump in December.
In a statement, U.S. Secretary of the Treasury Steven Mnuchin said the Trump administration “will continue working with states and the private sector to encourage investment and development in opportunity zones and other economically disadvantaged areas and boost economic growth and job creation.”
Governor Kenneth Mapp said the development of these new Qualified Opportunity Zones in the Virgin Islands is great for the territory’s economy. He said it will help the territory attract brand new investments in retail businesses, hotel development and other forms of industry in some of the Islands’ most underserved communities, while also helping those communities continue to rebuild after the devastation of last fall’s hurricanes.
Senator Tim Scott (R-S.C.) led the way in developing the legislation that made these opportunity zones possible for the U.S. Virgin Islands. The original legislation did not include the Virgin Islands or other American territories. After meeting with Mapp, Scott agreed to expand the scope of those eligible zones so low-income communities in American territories would be included.
How do Qualified Opportunity Zones work?
An area designated to be a Qualified Opportunity Zone keeps that designation for 10 years. Investors are allowed to defer taxes on any prior gains until the end of 2026, as long as they reinvest those gains into a Qualified Opportunity Fund, a type of investment method designed specifically to bring financial investment into Qualified Opportunity Zones. If the investor keeps his or her investments in that fund for at least 10 years, the investor is then eligible for an increase in its basis that is equal to the investment’s fair market value on the day it’s sold.
However, these types of tax-break zones are only available for qualified low-income communities. Mapp nominated Christiansted, all of western St. Croix and most of southern St. Thomas to be included as Qualified Opportunity Zones.
Congress has a history of pushing territories to increase development within their boundaries using these types of special tax breaks. These new tax breaks made possible by the Qualified Opportunity Fund will be added to the already existing 90 to 100 percent tax breaks on corporate income tax, property tax, gross receipts tax and excise tax the territory offers through the University of the Virgin Islands Research and Technology Park and the Economic Development Commission.
In total, 18 states and territories had regions approved in the Treasury’s first round of tax break zones.
For more information about Qualified Opportunity Zones and what their implementation in the U.S. Virgin Islands could mean for the territory, talk to a financial planning attorney today.
Tom Bolt is Managing Attorney of BoltNagi PC, a full service business law firm on St. Thomas, U.S. Virgin Islands.