9 | April, 2020 | Tim O’Hara, Managing Director, Energy Systems Network.
The establishment of Opportunity Zones was intended to encourage long-term investments in underserved, low-income communities by establishing a way to reduce an investor’s capital gains.
The 2017 Tax Cuts and Jobs Act allowed state governors to nominate census tracts as Opportunity Zones, with up to 25% of a state’s low-income census tracts to be eligible for designation. Indiana Governor Eric Holcomb nominated 156 census tracts as Opportunity Zones, which were a mix of underserved urban and rural tracts across the state. Investors interested in taking advantage of the Opportunity Zone tax break must do so through a qualified “Opportunity Zone Fund” investment.
The Treasury Department recently finalized Opportunity Zone regulations and many investors have set up qualified Opportunity Zone funds to take advantage of the legislation. Most of these funds are set up to invest in traditional residential and commercial real estate opportunities by refurbishing or rebuilding low-income properties in underserved communities.
This standard model of real estate investment in underserved communities presupposes that most of the investments occur in urban areas where increases in rental income can be offset by larger, more affluent populations. Investors in these properties will manage the property for ten years and then look to sell them, capturing any incremental gain on the post-acquisition economic appreciation. This type of capital gain will be tax free. Read more…