Opportunity Zones: What Developers and Investors Need to Know

By September 11, 2019 | Innovation & Entrepreneurship

Written by Andrea H. Reay, President/CEO of the Seattle Southside Chamber of Commerce

 

Opportunity Zones were created by President Trump’s Tax Cuts and Jobs Act in 2017. They allow an investor to defer Long Term Capital Gains (LTCG) taxes from the sale of real estate, highly appreciated stock, etc. if the proceeds are used to purchase property located in an Opportunity Zone that is (subsequently) substantially improved over a 30-month period following the acquisition of that property.

In the Soundside region, we have nine approved census tracks—or areas—officially designated as Opportunity Zones under this program. The program is geared to incentivize private investment and create jobs. The program works best for new construction as “substantially improved” means additions to the basis that exceed the adjusted basis as of the beginning of the 30-month period—therefore, it doesn’t really work for minor rehab projects.

 

Map of Opportunity Zones in the Soundside region

 

The benefits of investing in Opportunity Zones are…

  1. You defer the LTCG (Long Term Capital Gain) on your “coming-in capital” until 12/31/2026.
  2. If you hold the investment for more than 7-years, you get a 15% OFF coupon on your Federal (not State) capital gains taxes.
  3. If you hold the investment for more than 10-years, you get a step-up in the basis of your full market value at the time of sale. In other words, your gain from the sale is TAX-FREE.

 

Here is an example:

  1. Sell stock or real estate
  2. Create/Establish an Opportunity Fund with gains from the sale
  3. Invest or buy real estate in an Opportunity Zone
  4. (Year 7) Pay Federal LTCG tax of 20% × $1 million × 85% or $170 thousand + State tax
  5. (Year 15) Sell property for $5 million and pay $0 in Federal LTCG taxes

 

There is some fine print on eligibility for projects and the establishment of the opportunity fund and the timeline for projects to break ground to maximize the tax benefits. However, the benefit of investing within these zones at a time where buildable land and even developable property is at a premium has guaranteed a lot of interest and excitement about this program.

The Chamber is happy to provide referrals to brokers and partners familiar with the program. Please contact us for more information about the program and relocating or expanding in the Soundside.

 

 

This article was written by Andrea H. Reay, President/CEO of Seattle Southside Chamber of Commerce, “A voice for business, a leader in the community.” Seattle Southside Chamber has served the communities of Burien, Des Moines, Normandy Park, SeaTac and Tukwila since 1988. For more information about the Chamber, including a full list of member benefits and resources, please visit their website at www.SeattleSouthsideChamber.com.