Opportunity Zones Can Benefit Businesses & Neighborhoods
Cities have long struggled with disparities in investments. While one neighborhood may be bustling, another neighborhood a couple of miles away may be falling behind. Underinvestment can lead to a wide range of social and economic problems.
What Are Opportunity Zones?
In an effort to address this gulf, the federal government established “opportunity zones” as part of the 2017 Tax Cuts and Jobs Act. The law provides significant tax breaks for investors who choose to develop areas that meet certain median income and poverty rates. State governors nominated areas as zones of opportunity and the U.S. Secretary of the Treasury gave final approval for opportunity zone designations. The goal of Opportunity Zones is to use investment and development to address an underserved community’s systemic problems.
Taking Advantage of Opportunity Zone Tax Incentives
To be eligible for the tax incentives provided through opportunity zones, investors must create a qualified opportunity fund for investment in the designated area. Existing capital gains taxes can be deferred for funds that are reinvested into a real estate development or equity in a business located within the zone. The incentives become more attractive over time as funds are continually held in the opportunity zone investment.
How Do Opportunity Zones Work?
If you hold your investment in an opportunity zone for five years, your capital gains tax liability can be reduced by 10%. A seven-year investment can result in a 15% reduction. After 10 years, you may be able to eliminate capital gains obligations on gains altogether. Opportunity Zone incentives are set up this way to promote and ensure more long-term investment into historically disadvantaged communities and provide economic development.
BHMK Leads the Discussion on Opportunity Zones
Opportunity Zones have increased investment in areas of Cincinnati that most need the investment funds and have proven to be popular investment strategies for many savvy investors looking to defer or reduce capital gains.
The law firm of BHMK is a leader in understanding and applying opportunity zone investments. Give us a call when you’re ready to discuss opportunity zones and how you can take advantage of the “opportunities” in Opportunity Zones.