Opportunity Zones Program
New federal tax break allows eligible taxpayer to defer capital gains tax in exchange for investing in certain distressed communities across the country
In December 2017, the Tax Cuts and Jobs Act passed by U.S. lawmakers included a new tax benefit for certain taxpayers. In short, a new program, Opportunity Zones (OZ), offers a tax break incentivize to taxpayers in an effort to direct private investment capital into economically distressed communities. In exchange for making a qualified investment into a designated OZ fund, taxpayers who face federal tax liability on realized capital gains income can defer paying this tax until as late as 2026. In addition to the tax deferral, these taxpayers can reduce their original capital gains tax liability by as much as 15% based on how long they hold their original OZ investment and pay no capital gains tax on the appreciation on the original investment.
In summary, the OZ Program provides three tax benefits – (1) a deferral for paying capital gains tax, (2) a reduction in the amount of capital gains tax owed, and (3) exclusion of federal capital gain tax on appreciation of OZ investments.
How Opportunity Zones Program Works
The goal of the OZ program is to attract capital into economically distressed communities across the country, with the goal of spurring economic development and expanding access to opportunity. As such the program allows eligible taxpayers to sell an asset and realize a capital gain. Rather than paying federal capital gains tax on this realized income in the year the asset is sold, the taxpayer can instead invest the capital gains into a designated OZ fund within 180 days of realizing the capital gain.
More than 8,700 low-income census tracts have been designated as OZs in 50 states, the District of Columbia and five U.S. territories. Eligible taxpayers can make qualified investments in any of these OZs in order to participate in the deferral of capital gains tax until as late as 2026 and other tax benefits.
If the investor holds the original qualified OZ investment for five years, their original capital gains tax liability is reduced by 10%. If the original OZ investment is held for an additional two years (seven years in total), the original capital gains tax is reduced by an additional five percent – for a total 15% capital gains tax liability reduction. After 10 years of holding the original OZ investment, 100 percent of appreciation on the OZ investment is excluded from federal capital gains tax.
While new and much is to be learned as the various stakeholders move forward, this program could indeed become a viable value-add tool in the economic development toolbox for local communities across the country. Our goal as a firm engaging on this front is to help promote inclusive economic development and opportunity within these designated communities. Feel free to reach out to us to learn about how BWC Consulting can be a value-add resource in your efforts to take advantage of this program.
Our Opportunity Zones Services
Our work and efforts regarding the Opportunity Zones program aim to connect viable, deal-ready projects with OZ investors actively seeking such projects to deploy investment capital into. BWC offers the following professional services as part of the OZ work.
Project Sponsors: These include local units of government, private developers, and individuals with prospective projects within designated OZs. BWC provides the following of services:
- Identify prospective projects that are eligible for OZ investment capital. This entails ensuring that projects meet baseline qualification requirements as stipulated by OZ legislation and guidance issued by the U.S. Treasury regarding the program.
- Evaluate the viability and merit of qualified projects for OZ investment capital. This entails assessing the economics of the project, deal readiness, alignment with priorities and preferences of OZ investors, other potential economic development tools that can enhance the economics and attractiveness of project, and other assessments.
- Propose additional, or alternative, OZ projects that are attractive candidates for OZ investment capital.
- Connect vetted and deal-ready projects with OZ investors within BWC’s professional network.
- Secure OZ investment capital for vetted projects. This includes working with project Sponsor and identifying an ideal financing structure, identifying ideal OZ investor partners, and closing on OZ investment capital transactions.
OZ Investors: These include sponsors of qualified Opportunity Zones funds as well as high net worth individuals seeking viable vetted projects to deploy their capital gains income. BWC provides the following of service:
- Connect OZ capital providers with vetted and deal-ready projects.
North Carolina Opportunity Zones
BWC intends to focus much of its work around OZs in North Carolina on Tier 1 counties. These counties are designated as the most economically distressed counties in the state according to the NC Commerce Department. Approximately one in three of the state’s 252 designated OZs are in these counties, and around 341,000 North Carolinians live within these economically distressed communities.
Local leaders and stakeholders in these Tier 1 counties interested in learning more about how BWC can be a resource in helping position their communities to attract OZ investors should feel free to contact us.
North Carolina Tier 1 Counties (2019)
Opportunity Zones Investment Fund
To learn more about BWC’s efforts to launch its own Opportunity Zones fund, please visit the BWC Capital website. By creating its own OZ Fund, BWC Capital will be positioned to readily deploy OZ investment capital into vetted viable projects with its own dedicated capital.