Opportunity Zones

What are Opportunity Zones?

An Opportunity Zone is an economically-distressed
community where investors can earn preferential tax
treatment for pouring capital into it. Post-recession, some
communities simply did not recover and these particular
communities have become opportunity zones. These
zones are approved by the federal government and remain
opportunity zones 10 years after they have been designated
as so. During this time, investors have the option to defer
taxes on their capital gains as long as they invest those gains
into an opportunity zone fund. These funds must put at
least 90% of the pooled capital toward developing these
opportunity zones.


This has intrigued interest from commercial real estate clients
because of the increased investment opportunities and the
guarantee that if the investment is in place for 10 years, the
appreciation on the opportunity zone investment is excluded
from future taxation.


When Should You Invest in an Opportunity Zone?

Investors are attracted to new opportunity zone investments
because of the tax deferment and exclusion factor. Although,
the tax reduction benefits are dependent on how long
the investment is kept. If the opportunity zone fund is
maintained for 5 years, there is a 10% exclusion for this
deferred gain and in 7 years 10% turns into 15%.

An investor will become eligible for an increase in the basis
of the fund’s investment equal to its fair market value if the
investment is maintained for 10 years or more on the day that
the fund investment is either exchanged or sold. This is why
it is important for investors to understand that the sooner
they choose to invest in opportunity zones, the faster this
investment begins generating ROI.

How Should You Invest in Opportunity Zones?

When investing in an opportunity zone, you should consider
expanding upon your traditional ideas and putting your
capital gains to work. You may not initially think that
diversifying your portfolio with assets that may yield a lower
potential return is a wise choice, but opportunity zones will
mix things up. The tax benefits you receive will let you as an
investor take a lower pre-tax return on this diverse asset and
you will end up achieving a higher post-tax return. This can
help promote new projects in these areas that need the work,
attention and expansion.

What is a TIF District?

A TIF (Tax Increment Financing) district is an area within
a city that, after much careful study by the city and expert
consultants, is found to be “blighted” and without hope of
attracting private investment without some governmental
intervention. These are important criteria that must be met
prior to the creation of a TIF and they ensure that the funds
generated from a TIF are used in areas truly in need of
redevelopment.

Once a part of town meets the criteria, how does it work?

A TIF district essentially reallocates funds from property
taxes to encourage investment within the district. Any
increased tax revenues collected as a result of an increase in
property values then go into the TIF fund and can be used
by the city for a wide range of purposes within the TIF to
promote redevelopment.

What are the benefits of TIF funds?

TIFs create short- and long-term benefits for communities:

  • No tax increases attributed directly to development of
    infrastructure
  • Improvements to blighted areas of the City
  • Increased property values
  • Private investment and development
  • New jobs
  • Job retention
  • Job training programs
  • Stronger, broader tax base
  • Stronger economic base
  • Locally controlled development
  • Incremental revenue is reinvested in the TIF district
  • Stimulates investment outside TIF district boundaries


Indiana has 156 DESIGNATED OPPORTUNITY ZONES
find out more:
https://www.in.gov/gov/2979.htm

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