New York will no longer offer some state tax benefits to real estate investors funding Opportunity Zone projects, dealing another blow to the program and developers taking advantage of it.
A measure pushed by New York state Sen. Michael Gianaris to decouple New York state’s capital gains tax code from the federal program was included in the recently passed state budget. The change means developers and investors cannot defer state taxes on profits from asset sales poured into Opportunity Zone funds.
“Opportunity Zones are nothing more than a giveaway of public money to wealthy developers, and I’m glad New York took a stand against the much-abused program,” Gianaris said in a statement. The state’s action was previously reported by the New York Daily News.
New York joins North Carolina, California, Massachusetts and Mississippi in separating its state tax regime from the federal Opportunity Zones program.
The program, which was created by Republicans’ 2017 tax overhaul, lets investors and developers defer or forgo some capital gains taxes by funding projects in any of 8,700 Opportunity Zones across the country.
New York has 514 census tracts included in the program. Developers will still qualify for federal tax breaks for investing in those so-called distressed areas.
It’s unclear if there will be any immediate or major ramifications for Opportunity Zone projects in the state. Ken Weissenberg, a tax partner at EisnerAmper, said the elimination of the tax benefit makes New York more unfriendly to investors.
“[It’s] another wedge to drive people out of New York,” said Weissenberg.
But Daniel Ryan, a tax attorney at Sullivan & Worcester, believes that the impact of the state’s measure will be marginal. He said his clients are more interested in the federal tax benefit or whether a project makes financial sense.
“I don’t think state tax moves the needle,” said Ryan.
More than two dozen groups, including the New York State United Teachers and Communication Workers of America, recently wrote a memo supporting the elimination of the tax break. Those groups argued that the program could cost New York City and state up to $63 million in tax revenue during a “historic budget crisis.” (Legislators ultimately raised taxes $4.3 billion in passing a record-high $212 billion budget.)
The program purports to uplift low-income communities, but critics say the only thing it does for sure is save developers money. A small number of areas where development was already occurring — such as Hudson Yards on Manhattan’s Far West Side, or parts of Long Island City — make up the bulk of Opportunity Zones in the city.
President Joe Biden has said he intends to keep the Opportunity Zones program, but add transparency measures to see if it is actually helping low-income people.