21 Sep The Value of Opportunity Zones
In our previous article, “Helping Clients Benefit from Opportunity Zones,” we explored opportunity zones, what they are and why your clients should be interested. This panel features three highly accomplished opportunity zone experts: Felicia Hardy, Bo Kemp and Bennett Johnson III. In this article, we’ll explore opportunity zones in greater depth.
Opportunity zones are not just found in one region, but can be found in urban, suburban and rural areas. Many are surprised to learn that opportunity zones can even include agricultural options for investment.
Advantages for Investors
Panelist Bo Kemp pointed out there are several key advantages to investing in opportunity zones. First, is the tax deferral benefit in which investors don’t have to pay taxes until they exit an opportunity zone. The second benefit comes in the form of a tax reduction. Kemp notes that the benefit is tax deferral, as taxes still do have to be paid.
However, through the proper utilization of opportunity zones, it is possible to reduce one’s ultimate tax liability to the federal government. The third opportunity zone benefit is a real eye-opener. As Kemp states, “If you’re invested in an opportunity zone for at least five years or longer, the third benefit is really a home run and that’s the tax exclusion.”
There are additional aspects to opportunity zones that make them attractive. For example, many cities have gone through a lot of work to attract new money. This money is coming in through many different industries, ranging from real estate funds and sector focused funds to funds specifically focused on areas such as defense technology or solar energy. Opportunity zones are gaining increased interest lately. The COVID-19 pandemic has led to the private sector championing deals with the public sector as a method for mitigating their investment risks.
The Flexibility of Opportunity Zones
As Kemp points out, it is possible for a company to have assets in multiple U.S. states. Those assets can be dealt with differently depending upon what the company is trying to achieve. Under this framework, it is possible to create a new entity that places only a portion of assets into the opportunity zone. The end result is that companies can be strategic as far as how and when they move assets. Such flexibility provides clients with yet another potential opportunity zone benefit.
In the future, there will likely be changes to opportunity zones and how they function. With that stated, however, it is important to note that opportunity zones cannot be changed without an act of Congress. One potential change is in the area of disclosure requirements. However, currently there are almost no disclosure requirements. For clients looking for a new way to address capital gains and/or seeking a degree of investment flexibility, opportunity zones offer a bold option.
