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119-hr-2292119th CongressWALLET

Economic Opportunity for Distressed Communities Act

Sponsored By: Representative Edwards, Chuck [R-NC-11]

Introduced

Summary

Preferential tax treatment for capital gains invested in contaminated brownfields. This bill would create Section 1400Z-3 to let taxpayers elect special exclusions and deferrals when they invest capital gains into Qualified Distressed Opportunity Funds (QDOFs).

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  • Investors would be allowed to exclude from gross income an amount up to what they invest in a QDOF during a 180-day window. Deferred gain would be includable on sale or by December 31, 2033, and basis step-ups apply: +10% after 5 years, +5% after 7 years, and a full fair market value basis after 10 years.
  • Distressed communities would see targeted capital directed to DOZ property defined to include brownfield sites and facilities listed on the EPA National Priorities List. Qualified DOZ property must generally be original-issue stock, partnership interests, or tangible property placed in service or substantially improved by the fund and used mainly in the DOZ.
  • QDOFs would face strict rules and oversight. Funds must hold at least 90% of assets in DOZ property or face a monthly penalty tied to the underpayment rate, and the bill adds related-party limits and certification authority to curb abuse.

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Bill Overview

Analyzed Economic Effects

4 provisions identified: 1 benefits, 2 costs, 1 mixed.

Tax breaks for distressed-zone investors

If enacted, you could defer tax on a capital gain by investing in a Qualified Distressed Opportunity Fund within 180 days after selling to an unrelated person. You could exclude up to the amount you invest, then include the deferred gain when you sell the fund investment or on December 31, 2033, whichever comes first. Your basis would start at $0, rise by 10% of the deferred gain after 5 years, and by another 5% after 7 years. If you hold at least 10 years and make the election, your basis could equal the investment’s fair market value on the sale date. You could not make this election for sales after December 31, 2033, or make it twice for the same sale.

Penalties and oversight for zone funds

If enacted, a fund that holds less than 90% eligible property would owe a monthly penalty. The penalty would equal the shortfall times the IRS underpayment rate for that month, and partners would bear their share in a partnership fund. No penalty would apply if the fund shows reasonable cause. Treasury would also set certification, reinvestment‑period, and anti‑abuse rules for these funds.

Rules for funds and zone property

If enacted, a fund would qualify only if it keeps at least 90% of assets in distressed‑zone property, averaged at mid‑year and year‑end. Eligible assets would include stock or partnership interests bought for cash after December 31, 2025, from businesses that operate as distressed‑zone businesses. It would also include tangible property bought after December 31, 2025, where the fund starts first use or makes big improvements within 30 months. Sites would count only if they are brownfields or on the federal Superfund National Priorities List. Related‑party rules would be tighter: 20% ownership would count as related, which can block some deals.

How estates report deferred gains

If enacted, when someone who used these deferral rules dies, amounts not on their final return would be handled under section 691. That means the estate or beneficiaries would include this income under the usual rules for income in respect of a decedent.

Sponsors & CoSponsors

Sponsor

Edwards, Chuck [R-NC-11]

NC • R

Cosponsors

  • Rep. Crockett, Jasmine [D-TX-30]

    TX • D

    Sponsored 3/24/2025

Roll Call Votes

No roll call votes available for this bill.

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