It’s not quite lottery level buzz, but talk of the tax rewards and #business potential of Opportunity Zones has tax lawyers, developers, municipalities and business development pros clamoring for answers and angles.
Still, in its early stages, U.S. governors helped the Internal Revenue Service and U.S. Treasury define eligible census tracts as official zones in May and June. Initial draft regulations about the program provided a fair amount of broad specifics — until late on Oct. 19. That’s when the IRS delivered hotly anticipated detailed rules on Opportunity Zones in a 74-page report reflecting a long period of public comment.
Here’s why Opportunity Zones are getting a lot of attention.
If you have capital gains, the new bipartisan supported provision found in 2017’s tax reform means an individual or institution can park those capital gains into what is known as a Qualified Opportunity Fund. That fund is used only to create investment within the designated census tracts or group of tracts.
Notable Orlando zones include Carver Shores, Washington Shores, Rosemont, Mercy Drive, the Packing District (west of Orange Blossom Trail), West Colonial Drive, East Colonial Drive (GOAA properties), Parramore (south of Church Street), the SoDo area (west of Orange Avenue) and the northeast corner of Semoran Boulevard and Curry Ford Road.
If you leave those deferred gains in a fund for seven to 10 years, then you don’t pay the capital gains for that period. While real estate is the sweet spot, the program was initially developed as a job creator — so it also applies to gains on sales of businesses, too.
“Those gains are deferred, but on top of that, anything you earn in the Opportunity Zone is tax free,” said Mike Miedel, director at Pinellas Economic Development. “It’s a tremendous opportunity for people.”
The new details Friday were heavily anticipated, Starczewski said, and it’s going to take some time digest and understand. “There are still a number of open questions,” she said. But in one big move, the government extended the period over which an investor can take advantage of the program’s 10-year gain exclusion to as late as the end of 2047.
“They also answered some simpler questions like, can a Qualified Opportunity Fund be an LLC?” Starczewski said. “Yes, they can, and that was the right answer; and while it was just a clarification, it was nice to know so people didn’t feel like they had to create a limited partnership or corporation.”
Ahead of the Friday regs, PCED’s Miedel said it remained unclear how much people can use the funds for housing or hotels. “I think we are pretty safe with our target industries. The problem is how much of that investment will get sucked away from our types of projects into other things that would be secondary industries.”
Starczewski’s bottom-line takeaway: The program continues to be pro-taxpayer.
“As a practitioner, I think it is helpful guidance and I think it is designed to be facilitative,” she told OBJ sister paper the Tampa Bay Business Journal on Saturday. “I am happy to see that because it gives me a platform where I can say to clients, the IRS and Treasury are trying to help make these transactions work.”
With some level of confidence, Opportunity Zone subject matter experts can now have an easier time predicting what the feds will do in the next set of regulations based on the approach they took in the first one.