Opportunity Zones 2019 Copyright by S. S. Curtis, MBA, JD for Aspire To Money (TM), published Tuesdays
DISCLAIMER: This video is intended for general informational purposes only, and does not solicit nor form a professional relationship.
What should you know about Opportunity Zones?
Let's look at a few of the highlights.
The rationale for this law passed in 2018 is that new investments in poor areas of the United States will encourage new business activity in those areas, resulting in reduced poverty and increase employment.
The result is that there are now almost 9,000 economically distressed areas designated as Opportunity Zones in which tax-advantaged investment is now possible. The U.S. Treasury published the list at www.cdfifund.gov/Pages/Opportunity-Zones.aspx. You do not have to live in an Opportunity Zone to be able to invest in one.
Under this law, an investor can sell appreciated assets and invest the capital gains in Opportunity Zones.
After you sell an appreciated asset, you have 180 days to put your capital gains into a corporation or partnership that will invest in Opportunity Zones. This is called your Opportunity Fund.
Of course, you can invest on your own or co-invest with other people.
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There are three tax benefits to investing your capital gains into an Opportunity Zone.
One, you can defer payment of tax on those capital gains until the end of 2026.
Two, when the time comes to pay that tax, the taxable amount will be reduced by 15%.
Third, any appreciation of your Opportunity Zone investment will be 100% tax-free if you hold the investment for ten years.
Important: you will need to invest in an Opportunity Zone before December 31, 2019 to receive the biggest tax benefits under the law.
Tip: Consult with a professional who can consider your particular situation if you are considering Opportunity Zone investment as it is a complicated subject. And due your own diligence as this is new area and you do not want to be defrauded.
The IRS has issued guidelines on some aspects of Opportunity Zone investment. Check out the IRS Frequently Asked Questions document released on April 17, 2019 at www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions
Most types of real estate or businesses are eligible for Opportunity Zone investment.
However, the following businesses are to eligible: golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks, and liquor stores.
The business you start or invest in must be active.
At least 50% of the income from the business needs to be earned in an Opportunity Zone each year.
There are three ways to meet this 50% rule:
1) Your employees spend at least 50% of their work time in the Opportunity Zone.
or
2) At least 50% of the wages for your employees comes from performing services within the Opportunity Zone.
or
3) At least 50% of the income of your business is generated by tangible property located in the Opportunity Zone PLUS the management or operational functions are performed in the Opportunity Zone.
There are many more important details about Opportunity Zones covered in the IRS guidelines. This was just a very brief introduction to the Opportunity Zone subject. Please do your own due diligence if you are considering such an investment, and definitely consult with your tax professional!
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