Here’s How Trump’s Tariffs Will Impact Opportunity Zones

On this month’s live episode of OZ Office Hours, OpportunityZones.com founder Jimmy Atkinson explains how Trump’s tariffs on imported goods from Canada, Mexico, and China will impact Opportunity Zone investors. Plus, Jimmy takes live OZ questions from the audience.

Join Jimmy the first Monday of every month at 3:00 PM Eastern Time, to get your Opportunity Zones questions answered live.

Featured OZ Questions On This Episode

  • How will the Trump tariffs impact new construction in Opportunity Zones?
  • How do the 30-month substantial improvement provision and the 31-month Working Capital Safe Harbor provision work and interact with one another?
  • Is there a chance that non-gains dollars can be invested in Opportunity Zones in the future?
  • How do the 10- and 15-percent basis step-ups work for investors in Qualified Opportunity Funds?
  • Will offering my deal as an OZ investment make it easier to raise investor capital?

Featured On This Episode

About The Opportunity Zones Podcast

Hosted by OpportunityDb founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Transcript Summary

Jimmy Atkinson, the founder of OpportunityZones.com, welcomes viewers to the February 2025 edition of Opportunity Zones Office Hours. The session is designed to address questions about Opportunity Zones (OZs) and explore the potential impact of Trump’s proposed tariffs on the OZ investment landscape.

Before diving into the main discussion, Jimmy promotes OZ Insiders, a networking and educational platform for those interested in Opportunity Zones. This group offers monthly masterclasses, coaching, and networking opportunities for both newcomers and experienced professionals in the OZ industry.

The primary topic of discussion in this session is how Trump’s tariffs could impact Opportunity Zone investments, particularly in terms of construction costs and real estate development.


Trump Tariffs and Their Impact on Opportunity Zones

Jimmy begins by examining recent fluctuations in lumber prices, an essential component of construction costs. A key concern is how Trump’s tariffs on Canada, Mexico, and China will impact OZ developments. In recent days, lumber futures have shown extreme volatility, moving from $557 to $623 per unit before stabilizing around $590-$600.

There was a temporary suspension of the tariffs on Mexico, following an agreement between the U.S. and Mexican governments. However, tariffs on Canada and China remain in place, leading to uncertainty in the construction materials market.

Jimmy speculates that Trump may not intend to enforce these tariffs long-term. Instead, he might be using them as leverage in ongoing trade negotiations. Historically, Trump has used tariffs as a bargaining tool and has previously backed down from some tariffs after negotiations.

According to Origin Investments, a major OZ fund sponsor:

  • 46% of U.S. construction materials come from Canada, China, and Mexico.
  • 35-50% of total multifamily construction costs are tied to finished materials like lumber, appliances, and HVAC systems.
  • Tariffs will likely be inflationary, raising costs for new projects.

The practical implications for OZ investments:

  1. Projects already under construction will be less affected, as they have secured materials at previous prices.
  2. New developments that haven’t broken ground yet will face higher costs, potentially reducing the number of new OZ projects.
  3. Developers might delay or cancel projects, leading to fewer housing units and increased rental prices due to limited supply.

For OZ investors:

  • Existing OZ projects that are near completion may benefit as fewer new developments increase demand for current units.
  • Investors should consider focusing on stabilized assets or projects already well underway rather than new construction.
  • If tariffs persist, OZ developers may shift to alternative sourcing strategies to mitigate cost increases.

Investor Sentiment and the OZ Market Outlook

Jimmy discusses investor sentiment post-2024 election and whether the OZ industry remains bullish or bearish.

Positive Investor Momentum:

  • Most OZ sponsors remain bullish on the program.
  • The political climate in Washington is favorable for OZ extensions and possible permanency.
  • Investors are becoming more active as they gain clarity on future tax policy.
  • Legal experts and fund managers report increased investor interest post-election.

Likelihood of OZ Program Renewal:

  • OZs have broad bipartisan support at local, state, and federal levels.
  • The Republican-controlled Congress, Senate, and White House are likely to extend OZs before their scheduled expiration in 2026.
  • Past legislative processes involved bipartisan sponsorship, meaning there is a strong chance of renewal.
  • Policymakers recognize the economic benefits of OZs in attracting capital to underserved areas.

Understanding Opportunity Zone Compliance Timelines

A potential OZ sponsor asked about the 31-month Working Capital Safe Harbor and the 30-month substantial improvement period. Jimmy explains:

  • New construction projects must be completed within a reasonable timeframe.
  • Substantial improvement requires doubling the original asset’s value (excluding land) within 30 months.
  • The 31-month Working Capital Safe Harbor provides flexibility in meeting compliance requirements.
  • These provisions ensure that investors and developers have sufficient time to deploy capital without immediate penalties.

Basis Step-Up Benefits

Viewer question: How does the step-up in basis work for OZ investments?

Jimmy’s Explanation:

  • Originally, OZ investors received basis step-ups for investments made before:
    • End of 201915% step-up.
    • End of 202110% step-up.
    • After 2021 → No step-up.
  • A 15% step-up means investors only owe tax on 85% of their deferred capital gain in 2026.
  • If legislation extends OZ benefits, newer investors could receive retroactive step-ups, improving their tax advantages.

Policy Proposals for OZ Expansion

A recent letter from the Novogradac Opportunity Zones Working Group to the Trump administration suggests several enhancements, including:

  • Allowing non-capital gains (ordinary income) to be invested in OZ funds.
  • Making OZ incentives permanent.
  • Expanding investment categories to attract more capital.

Jimmy notes that allowing ordinary income to qualify would be a game-changer but could be politically challenging due to concerns over the program’s cost.


Multifamily Challenges and OZ Opportunities

Viewer question: Given current multifamily market challenges, how can OZs help?

  • Multifamily development is more expensive due to high financing costs and slowed rent growth.
  • OZ incentives can help attract capital to projects that might otherwise struggle to secure funding.
  • OZ investors benefit from tax-free appreciation, making OZ multifamily projects more attractive than traditional real estate deals.
  • Investors should highlight these benefits when raising capital.

How to Launch an OZ Fund in 2025

A viewer asks about starting an OZ fund in 2025 and how Jimmy’s coaching program (OZ Insiders) can help.

  • OZ Insiders provides guidance on fund structuring, compliance, and capital raising.
  • New fund managers must understand:
    • Legal fund formation requirements.
    • Best practices for investor relations.
    • How to leverage OZ tax incentives for marketing and fundraising.

Those interested can contact Jimmy at [email protected] or visit OZInsiders.com.