A prominent feature of 2017’s Tax Cuts and Jobs Act was a provision to encourage community development, known as Opportunity Zones.
These Federally-designated “zones” are in areas of the nation which would benefit the economy and the public good if developers are willing to build, or re-build within them. There are attractive opportunities in this program for businesses, real estate developers and investors:
Developers, establishing a fund for their qualified projects can help generate third-party investment capital.
Passive investors can re-invest unrealized capital gains into “Opportunity Funds” (OF) that are dedicated to investing into these Opportunity Zones (OZ).
Businesses can relocate to less expensive commercial space, or enlarge their pool of potential employees.
- Developers can also use their fund to defer tax on the sale of capital assets.
Here’s an example for a developer: if he or she puts capital gains generated from the sale of a capital asset into a fund for eight years, with the basis increase and a 5% present value discount to value the deferral, he or she would pay only 57% of what they otherwise would pay in taxes.
Here’s an example for an investor: Opportunity Zone Fund investments defer tax payments on recognized gains for up to eight years. In addition, if the investor holds the investment in the OF for at least ten years, all appreciation of the OF investment would accrue tax-free.
Within the investment community the program is considered quite generous: one of the better tax-reducing efforts put forth by the government in years. Like tax credits for historic rehabilitation, toxic land clean-up, development of affordable housing, and the creation of renewable energy, the program is an example of how developers and investors can contribute to the betterment of all while being allowed to profit for their efforts.
The Cherrytree Group assists both developers and investors in identifying and managing Opportunity Zone initiatives. We are able to “pair together” developer and investor for a partnership which helps both meet their most optimistic goals. To learn more, click the link below to our White Paper on the subject, or give us a call where we will discuss the possibilities — without any obligation.
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