MAKING THE MOST OF OPPORTUNITY ZONES // JANUARY 2019
A year after President Trump signed sweeping tax overhaul legislation, many communities of modest size are still struggling to take advantage of the Opportunity Zones section of the law.
Opportunity Zones could become one of the most effective economic revitalization tools offered up by Congress in decades. Lawmakers envisioned a tool to channel investment capital into economically distressed areas, whether urban, suburban or rural. Under the new law, investors ranging from local business owners to national funds can minimize their capital gains obligations by investing in distressed areas.
The tax bill specified that local leaders identify eligible distressed census tracts for possible Opportunity Zone designation. Responding to the guidelines, Governors then chose 25 percent of the tracts to qualify for Opportunity Zone status. Approximately 8,700 zones have been designated across the nation. Investors can defer capital gains taxes through 2026. If investors stay in a zone for seven years, their tax liability is reduced 15 percent; if they stay for 10 years, taxes on their Opportunity Zone investment return are eliminated.
Thomas P. Miller & Associates is helping communities with their zones in two phases:
ASSESSMENT PHASE // This phase focuses on businesses already existing in the zone that can take advantage of the tax incentive. The phase also focuses on real estate investment opportunities that could attract zone investment to the community. In addition, community leadership is organized to outline a broader economic development strategy to guide long-term zone investment. The Assessment Phase is based on the premise that investors must understand the deal proposition or opportunity if they are to bring their capital to a zone.
ACTIVATION PHASE // More complex than Assessment, the Activation Phase involves assembling a prospectus to “pitch” a zone to potential investors. The prospectus becomes a tool to familiarize potential investors with a community’s assets that then establish a suitable environment to support investment-grade business and project opportunities. Activation also cultivates local leadership by preparing them to make the pitches. Opportunity Zone activation creates the potential to spark long-term investment.