Qualified OpportuniTy Zone Program
Under the recently created Opportunity Zone program, significant tax benefits are available to most investors with eligible capital gains. Eligible capital gains include long and short-term gains realized from the sale of investments, including stock, businesses and real estate, including a personal residence. The gains must be reinvested in qualifying businesses operating within a designated Opportunity Zone.
Your business can be funded with an equity investment from any self-certified qualified entity. Such entities, known as Qualified Opportunity Funds, are derived via the reinvestment of capital gains generated by the proprietor, “friends and family” and/or other outside investors, including funds being raised to make investments in businesses in designated Qualified Opportunity Zones. In all cases, realized capital gains must be reinvested in a Qualified Opportunity Fund within 180 days.
Benefits to Tenants:
Investors in Qualified Opportunity Funds can achieve significant tax benefits for equity investments, including tax deferral and permanent tax reduction.
To remain certified as a Qualified Opportunity Fund, the Fund must hold at least 90% of its assets in Qualified Opportunity Zone property. Such property includes certain stock or partnership interests of the underlying business, and/or business property (personal and/or real property) of a Qualified Opportunity Zone business.
Example of Investor Timeline:
- Investor sells stock, a business or real estate with a $50,000 tax basis for $150,000 and realizes a capital gain of $100,000.
- Within 180 days of the sale Investor reinvests the capital gain in a Qualified Opportunity Fund. The investor retains, tax free, the $50,000 of cash representing the tax basis. The tax on the capital gain is deferred. The Qualified Opportunity Fund subsequently invests in a business (or businesses) located in a Qualified Opportunity Zone.
- Year 5 – Investor receives a 10% (in this case a $10,000) step-up in basis reducing the taxable gain to $90,000. The tax on the gain remains deferred.
- Year 7 – Investor receives an additional 5% (in this case $5,000) step-up in basis, further reducing the taxable gain to $85,000. The tax on the gain remains deferred. An investor needs to reinvest realized capital gains in a Qualified Opportunity Fund by 12/31/2019 to achieve Year 7 benefits.
- At December 31, 2026, the deferred tax on the reduced taxable gain of $85,000 is due.
- Year 10 and beyond – Investor would not owe federal and perhaps state tax related to post acquisition appreciation on its interest of the Qualified Opportunity Fund when such gain is realized.
- December 31, 2047 – The Opportunity Zone Program terminates.
Locating Your Business:
Locating your business at a qualified Netrality property listed below will allow an investor to enjoy the tax benefits shown above and offers your business access to tax-favorable Qualified Opportunity Fund equity investment dollars.
1301 Fannin Street, Houston, TX 77002
401 North Broad Street, Philadelphia, PA 19108
900 Walnut Street, St. Louis, MO 63102
210 North Tucker Boulevard, St. Louis, MO 63101
Indianapolis – Indy Telcom Center
Disclaimer: The information presented here has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information presented here without obtaining specific professional advice. No representation or warranty is given as to the accuracy or completeness of the information. You should also be aware that additional Treasury Regulations are due to be released to further clarify the Opportunity Zone Program provisions of the Internal Revenue Code.