John Paul Radcliffe, Special to BIZ. Magazine
Partners came together late last month at Bossier Parish Community College to explain how businesses can use a tax incentive to start new projects that help economically distressed areas.
Carr, Riggs & Ingram, the Greater Bossier Economic Development Foundation, and the Coordinating and Development Corporation partnered to share insights on evolving Opportunity Zone tax strategies.
Opportunity Zones are areas that have been designated as economically distressed and in need of restoration, and include incentives designed to spur economic development and job creation.
The key incentive to spur economic development toward opportunity zones is tax benefits.
According to CRI, “Taxpayers can receive capital gains tax deferral, capital gains tax reduction and additional gain forgiveness for making timely investments of eligible gains in Qualified Opportunity Funds (QOF).”
As of Dec. 22, 2017, Opportunity Zones became an official tax cut incentive under the Tax Cuts and Jobs Act. Since then over 8,700 Zones have been designated nationwide and 150 zones statewide.
By investing in Qualified Opportunity Zones (QOZ), one can temporarily defer taxable income for capital gains, reduce taxable capital gains by 10 percent after five years and by an additional 5 percent after a total of seven years of holding an investment. After 10 years of retaining the investment, appreciation based on the fair market value basis is tax-free. The earliest to qualify for this is December 31, 2026.
There are many ways that a business can take advantage of Opportunity Zones — commercial real estate projects, new businesses and expansions of existing businesses within the zone.
“Opportunity Zones are not real estate. The incentive is a way for a business to invest in the Opportunity Zone or existing Opportunity Zone that is looking for an expansion,” said Hardy D. Foreman, partner of CRI.
Partner of Blanchard Walker Law Corporation William C. Bradford, Jr. detailed the two steps it takes to invest in QOZ; the first is to establish a qualified opportunity fund and then to make a qualifying investment.
Bradford made a point to mention that after investing in the QOZ, the company must verify that 50 percent of the Total Gross Income must be obtained from the QOZ in the Opportunity Zone in order to maintain the reduced taxable income.
He used lawn maintenance services as an example of this. As a lawn maintenance company, the business may be able to provide a service to those who are out of the Opportunity Zone, however, business operations must be linked back to and conducted inside the QOZ.