New federal tax incentives aim to drive investment into rural Tennessee communities by significantly increasing tax benefits for developers.
Tennessee Department of Economic and Community Development Innovation Director Lamont Price discussed the changes to the Opportunity Zone program Wednesday during a meeting with local officials. The updated regulations introduce specific advantages for rural census tracts compared to the previous version of the program.
“So what that effectively means is those census tracts that are designated rural, instead of it having a 10 percent tax discount or step-up in basis, now it has a 30 percent step-up in basis,” Price said.
Price said the program is designed to direct capital to low-to-moderate-income areas. The new rules also adjust the timeline for investments to make the process more flexible for participants.
“In addition to that, to get the step-up in basis, it’s now a rolling deferral, so there’s no cliff that it would fall off,” Price said. “So now, whenever you enter an investment, that starts your five-year window to receive that 10% or 30% step-up in basis.”
Officials hope these increased financial incentives will overcome hesitation from investors regarding areas with lower population density. The goal is to encourage developers to take a closer look at impactful communities outside of major cities.
“Now, with this 30 percent step-up in basis in terms of a tax benefit, this is going to have developers and investors take a stronger look at some of these really great impactful communities in rural Tennessee,” Price said.
While the benefits are increasing, the total number of designated zones in the state will decrease under the new version of the program. Price said this reduction occurred because economic conditions in several Tennessee communities have improved since the initial designations were made.
“So the census tracts are based on criteria like poverty rate, average AMI, or average income for an individual,” Price said. “So some of our communities did better. And so that’s why we’re going to have less census tracts to choose from this time around.”
Previous successful projects in the state include manufacturing expansion in Jackson and the conversion of the old Tennessee Supreme Court building in Knoxville into workforce housing.