Are you missing out on an opportunity? The Tax Cuts and Jobs Act of 2017 established an opportunity to defer or eliminate capital gains taxes on certain investments. These tax breaks have the potential to provide a significate return on investment for investors while stimulating the economy in disadvantaged areas, improving quality of life, creating jobs by supporting projects that increase business in many sectors. This potential has been overlooked by many, and even those who are aware of it are waiting for regulations clarifying the specifics, with a new draft of regs anticipated sometime in March 2019.
What is a Qualified Opportunity Zone (QOZ)? A QOZ is a low-income census tract selected by the state’s governor for qualification. By offering tax breaks to investors, it is hoped that invested funds will be channeled towards economically disadvantaged areas for development and redevelopment. Click here for a map, zoom in on your area of interest to see designated census tracts.
How can you take advantage of this provision of the Tax Cuts and Jobs Act of 2017?
Investors who have significant capital gains realized after July 2018are the most obvious beneficiaries. Reinvesting capital gains in a qualified business or in real estate development in a QOZ through a Qualified Opportunity Fund (QOF) allows the investor to defer capital gains taxes and eliminate up to 15% of the taxes on the reinvested capital and up to 100% of the capital gains tax when the investment is sold. Unlike a 1031 exchange, capital gains reinvested in a QOF do not have to be of like-kind, for instance, capital gains from the sale of stock can be invested in real estate.
If you own land or commercial real estate, you could benefit from the influx of investment capital into real estate and business development. If your property is in an QOZ, this may be the time to sell or redevelop a property that has not been performing as well as you would like. Investors are aggressively searching for suitable properties within a QOZ. Selling now means that you could reinvest in a QOF and defer and eliminate capital gains taxes!
Opportunity Funds and investors are looking for investment projects. Developers, architects, contractors, and real estate professionals need to have ideas and projects ready to go to capitalize on investment funding. Time is of the essence for investors to take advantage of the full tax benefit. Investments must be chosen as early the end of 2019 to eliminate the full 15% of capital gains taxes possible. Logically, funding will go to projects with a start date that fits the time frame, and to professionals with experience and projects in redevelopment, economic improvement, and low-income housing.
United States Treasury
https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx accessed 2.21.19
City of Santa Fe Office of Economic Development
https://www.santafenm.gov/opportunity_zones_in_santa_fe accessed 12.26.18
Treasury/IRS proposed regs https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-opportunity-zone-tax-incentive