The November 15th Business Section of the New York Times carried the unintentionally insightful headline “Amazon Site is Upscale and ‘Distressed’’’. The Times story dealt with a provision added to last year’s GOP tax cut that created ‘Opportunity Zones’ meant to draw investment to neglected neighborhoods. Inserted by South Carolina Senator Tim Scott, the zones allow investors complying with regulations still being worked out by the Treasury Department to reduce their capital gains tax burden. The idea is that pouring unrealized capital gains into funds that invest in real estate in areas that have opportunity zone status can essentially save investors as much as 15 percent of the taxes they would have owed on their investment gains. If they hold an investment in an opportunity zone for more than a decade, they avoid all taxes on any gains that the investment produces.
This tidy arrangement has many pitfalls. An obvious one is what happens if a neighborhood that could hardly be called neglected gets declared one of these opportunity zones. It just so happens that earlier this year New York State designated the Long Island City waterfront in Queens as an opportunity zone, the same area where Amazon has conveniently agreed to build one of its new headquarters. Therefore Amazon itself could benefit from the designation by starting an opportunity fund to buy real estate in the zones surrounding the office. This could be counted as a further Amazon subsidy….