Opportunity Zones have been a hot topic in the commercial real estate world lately. If you have yet to hear about them, let’s take a look at what they are. Added to the tax code under President Donald Trump in 2017, an opportunity zone is a community that has been distressed economically. Due to the economic climate of the area, the opportunity zone may be eligible for preferential tax treatment.
In recent years, many communities have seen growth and development. However, there are some communities that are still feeling the effects of the recession – 10 years later. Many of these struggling communities have become opportunity zones. Approved federally, these areas will remain opportunity zones for 10 years. During the time they are considered opportunity zones, investors are able to defer taxes on capital gains if they invest them in an opportunity zone fund. These opportunity zone funds must utilize at least 90% of the pooled capital toward generating, developing and operating a business in the opportunity zones.
Additionally, if the investment in the opportunity zone is held for a minimum of 10 years, the appreciation on that opportunity zone is exempt from taxes in the future.
So, these opportunity zones are sounding appealing to you as an investor –but what’s the catch? Not much. Let’s explore some things you need to know.
When is The Prime Time to Invest?
They say there’s no time like the present. Well, that also rings true for opportunity zone investment. What makes opportunity zones so appealing to investors is the idea of tax exclusion. However, it is important to remember that the tax benefits are directly linked to how long the investment is maintained.
If you maintain the fund for 5 years you get 10% deferment, 7 years and 10% goes to 15%. If you maintain the fund for 10 years you will become eligible for an increase in basis of the fund’s investment equal to its fair market value on the date that the fund investment is sold or exchanged. That being said, the sooner you invest the sooner your investment will develop into tax exclusions.
Should I Invest Close to Home?
There’s no right answer as to where you should invest. However, there are opportunity zones in all 50 states. As an investor, you may want to take a look at which communities have needs in your area of expertise. For example, an urban area may be in need of jobs to support the lack of affordable housing. However, if you are more comfortable choosing an area where you are familiar and have experience in a location, you may want to look there. You can view current opportunity zones in Louisiana here.
What is the Best way to Invest?
An opportunity zone is a great way to broaden your horizons and diversify your portfolio. If you have been hesitant to invest in new assets in fear of a lower return, this is a good time to try something new. The high post-tax return allows new ideas to come to fruition in locations that can truly benefit from them.
Though there are many ways to invest, thinking of doing so in an opportunity zone is a good way to reap a benefit from helping where it is most needed.
If you’d like to talk with one of our agents about investing in an opportunity zone in the Baton Rouge and surrounding areas, don’t hesitate to call us at 800-895-9329 or email us at email@example.com.