There’s No Place like Home…for Opportunity!

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A message from the Land of O.Z.

By: Christopher R. Halbleib, CPA

 

When traveling, it’s common for people to ask “Where are you from?” When responding with “Kansas,” my family often gets a Wizard of Oz joke or statement. It’s good for a smile and even a laugh. Speaking of Oz, I’d like to take you down a different “yellow brick road” in this article.

The O.Z. I’m referring to is the topic of Opportunity Zones. No “Emerald City” here, but perhaps some new business ventures and projects in your future could lead to a different kind of “green”.

Included in the Tax Cuts and Jobs Act and signed into law in December 2017 is a new tax planning technique for deferring gains from sales. By investing in Qualified Opportunity Funds, taxpayers can defer – and potentially partially avoid – gain recognition on the sale of property. The Qualified Opportunity Funds are designed to make investments in economically distressed communities called Opportunity Zones.

What is an Opportunity Zone?
The 2017 tax reform law includes a new and unique tax incentive program for investments in low-income communities know as Opportunity Zones. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment1. Tax benefits include deferral of capital gains realized on the sale of virtually any kind of existing investment, reduction of the amount of gain realized through a step-up in basis, and permanent exclusion of gains on the appreciation of the interest purchased through an Opportunity Fund. Localities qualify for a 10 year period as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury.

Projects are Popping Up
There’s a significant opportunity for people who work in the construction industry as well as in real estate development and investment. Opportunity Zone projects are starting to pop up in areas near you and where you currently do business and in areas where you could be doing business. You could receive the tax benefits if you have capital gains and invest in a Qualified Opportunity Fund. More importantly, business opportunities will surface as projects are developed as a result of the new law that will need construction and real estate development services.

To start this journey, all you need to do is click your heels three times and say… just kidding! I’m still thinking about those Kansas jokes from earlier. Instead of doing that, you’ll need to connect with your local city or county Economic Development people. Economic Development professionals will know which projects are in the works and will be able to help you get involved with developers who have attractive projects for which they are needing funding. In addition, familiarize yourself with the map of where Opportunity Zones are physically located by clicking HERE. There may be one in your backyard or just a few miles down the road. I’ve provided a high-level view of Opportunity Zones in this article, but your CPA will be a valuable resource on the requirements and inner workings of OZ projects. There’s no place like home…for opportunity!

Chris R. Halbleib, CPA, Senior Manager, leads Adams, Brown, Beran & Ball, Chtd.’s Construction & Real Estate Industry. In addition to over ten years of public accounting experience, Chris is an avid researcher. His most recent research interest is on the emerging technologies in the Construction space. Chris manages the firm’s Colby, KS office and is also Lean Six Sigma Green Belt Certified. He is also a graduate of the KSCPA’s “20 up to 40” leadership program. For more information, contact Chris.

1 https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions