Opening Doors to Investment Opportunity
What Are Opportunity Zones?
The Opportunity Zone (OZ) program, created by the Tax Cuts and Jobs Act, offers attractive tax incentives to investors. In 2018, all 50 states, the District of Columbia, and five U.S. territories designated certain areas as Opportunity Zones, or economically distressed regions that could benefit from long-term investment.
What’s the Incentive?
Investors can defer capital gains from the sale of real estate, stock, businesses, or other sources of capital gain by investing in any of nearly 9,000 designated OZs through a self-designated Qualified Opportunity Fund (QOF). A QOF is a vehicle, set up as a partnership or corporation, for investing in eligible OZ property. Depending on how long the investment is held, and when the investment starts, investors can receive reduction of up to 15% of the capital gain and exclude taxes on gains from the QOF.
Why Invest Now?
The Treasury Department finally released proposed OZ regulations and IRS guidance in October 2018. Now the rush is on to form and invest in QOFs, in order to secure the maximum tax benefits.
- To take advantage of the benefit, investors must re-invest deferred gain in a QOF within 180 days of the sale or exchange that resulted in the gain.
- In addition to real estate, QOFs can make equity investments in certain types of businesses and tangible property within Opportunity Zones.
- Benefits if the QOF investment is held, as of December 31, 2016, for:
- 5+ years = 10% exclusion of deferred gain
- 7+ years = 15% exclusion of deferred gain
- Benefits if the QOF investment is held for longer than 10 years (until December 31, 2047):
- No tax gains from the QOF investment
An estimated $6 trillion has the potential to flood into Opportunity Zones. Many funds have already raised capital and are investing in OZ projects, with more on the way. Businesses and startups are positioning themselves to ride the wave of capital. State and local governments are forming and reorganizing economic development coalitions. Regulations are still taking shape. In this turbulent atmosphere, Michael Best can provide calm, clear-headed guidance.
As a full service law firm, Michael Best can cover all the bases for Opportunity Zone investments. Our OZ team of attorneys works closely with our affiliate Michael Best Strategies, which provides government relations, public affairs, and business consulting services. Together, we serve as strategic advisors to investors, investment funds, broker-dealers, business owners, developers, nonprofits, and public sector or quasi-public clients. Some of our core OZ services are outlined below.
- Fund creation, operation, and compliance
- Strategies for deployment
- Advising on fund domicile and legal structure
- Carried interest and incentive compensation design
- Target investment and purchase execution
- Structuring public-private partnerships to maximize collective impact, efficiency, and economic return while maintaining tax compliance
- Ongoing corporate compliance
- Capital-raise compliance and legal work
- Legal work related to target asset selection, acquisition, and due diligence
- Advising clients on multi-source, non-traditional debt and equity financing
Project Development & Real Estate
- Debt, equity, and financing structuring and land acquisition and developments
- Real estate joint ventures
- Project financing and structured finance
- Combining OZ investments with low income housing, state and federal historic, and new markets tax credits
- Environmental assessment, permitting, and enforcement
- Construction contracts and disputes
- Leasing and ground leasing
- Zoning, permitting, and entitlements
- Compliance guidance for securities offerings
- Broker-dealer registration and regulation issues
- Advising nonprofit organizations on tax compliance for nontraditional investments
- Tax incentive negotiations, including combining OZ investments with TIF projects
- Compliance with the OZ investment guidelines
- State and local tax issues
Michael Best Strategies (Government Relations, Business Consulting, and Public Affairs)
- Advocate on behalf of clients in the federal and state regulatory process to ensure the Opportunity Zones program aligns with business and community objectives
- Prepare custom reports and analysis of areas targeted for investment, to identify opportunities of high social and economic return
- Support consultation and outreach with local, state, federal, and nongovernmental stakeholders to secure project support
- Optimize business development in Opportunity Zones by supporting necessary zoning, land use, environmental compliance and permitting, licensing, etc.
- Develop and implement communications plans to build support with key government and community stakeholders
- Identify and advance targeted state and local incentives that complement OZ investments