Opportunity Funds are a new class of investment vehicles authorized to aggregate and deploy private investment into Opportunity Zones.
Originally introduced in the Investing in Opportunity Act (IIOA), the Opportunity Zones Program was enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act). The program is designed to drive long-term capital to rural and low-income urban communities throughout the nation and uses tax incentives to encourage private investment in impact funds. Minnesota has multiple opportunities for quality Opportunity Zone investing and is expected to be a major development driver over the next 10 years.
Furthermore, there is no cap on the amount of money that can be invested in Qualified Opportunity Funds.
Here are high-level definitions of key terms:
Opportunity Zone: A census tract which has been designated as eligible to receive private investments through
Opportunity Funds. A private investment vehicle, certified by the Treasury, to aggregate and deploy capital in Opportunity Zones for eligible uses defined as Opportunity Zone Property.
Opportunity Zone Property: Asset types eligible for investment under the Opportunity Zones Program.
The Opportunity Zones program offers three tax benefits for investing in low-income communities through a qualified Opportunity Fundi :
A temporary deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
Properties within Opportunity Zones will receive occupancy demand from businesses desiring to locate within an Opportunity Zone - benefits exist for both real estate investors and businesses that occupy or invest in Qualified Opportunity Zones.
Businesses that locate within Opportunity Zones have different benefits but can also pay no capital gain taxes if they remain in the Zone for 10 years and abide by the governing rules. Businesses can also accept investments from investors who can invest capital gains. Investors will be sheltered from capital gain taxes if the business invested in remains in the Opportunity Zone for greater than 10 years. Please contact us for additional information and locations for your company to consider.
Minnesota Opportunity Zones
We Connect Opportunity Zone property to Opportunity Zone Investors
John McCarthy has multiple decades of commercial real estate experience and significant knowledge with the Opportunity Zone program, its benefits, and pitfalls. His team have spent the last two years researching this program and identifying available properties and projects within the marketplace that will qualify as an Opportunity Zone investment. No real estate team can provide clients with more information and market knowledge related to the Opportunity Zone program. We welcome the opportunity to share our thoughts on your property and discuss properties that may fit into your Opportunity Zone portfolio. Give us a call - we love discussing Opportunity Zones, it gives us goose-bumps.