According to Trae Miller, Logan County Economic Development Director, Northeast Colorado has over 3,000 square miles of designated opportunity zones. The zones are fit for a variety of projects and investments, from commercial and industrial developments that complement the robust food and ag processing sectors, to energy development sites for oil and gas, to housing development areas to address the vast shortage, to existing projects actively seeking outside capital.
Marc Schultz, left, of Snell & Wilmer Law Offices, speaks about the new Opportunity Zone tax incentive program at a seminar on the program Thursday, Nov. 15, 2018, at NJC. Also joining him were his colleagues Jason Brinkley and Rebekah Elliott. (Callie Jones / Sterling Journal-Advocate)
“This program represents a vast potential for our region to solicit new investment providers, to support our existing and proposed economic development projects,” Miller said.
The bulk of seminar was a presentation by Marc Schultz, Jason Brinkley and Rebekah Elliott, of Snell and Wilmer Law Offices, on what the Opportunity Zones are and how they work.
Opportunity Zones were established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage private capital investment in economically distressed areas. Governors in each state were responsible for designating where those zones are located each state. Colorado has O-Zones in every part of the state that were designated based on true economic distress, the ability to both attract and absorb investment and the ability of investments in those areas to be positive.
The OZ allows investors to invest the capital gains portion of an investment into property, projects, or businesses within an OZ to defer capital gains tax liabilities and receive up to a 15-point step up in basis on the original investment. Additionally, the investment made within the OZ can be fully capital gains exempt if the investment is held for at least 10 years.
Taxpayers can defer and potentially reduce taxation on capital gains by making timely investments in Opportunity Funds which invest in Opportunity Zone property.
“There is a lot of flexibility in this program and a lot of things that can be taken advantage of,” Schultz said.
Taxpayers eligible for this program include individuals, C corporations, RICs, REITs, S corporations, partnerships (LLCs and LPs), and trusts and estates.
Possible investments in opportunity zones include real estate development and significant rehabilitation, opening new businesses, acquiring existing businesses, relocating a business (with expansion) and large expansions of businesses already within Opportunity Zones.
The Opportunity Zone has three tax incentive benefits: Temporary deferral of eligible gain, partial reduction of deferred gain and forgiveness of additional gain.
Brinkley pointed out “there is a lot of taxpayer friendly things about this program, but it does take a lot of planning and making sure you’re doing things the right way.” One of the things to plan on is the requirement that the Opportunity Fund must be certified by the U.S. Treasury, organized as a corporation or partnership (it can be an LLC) and must hold at least 90 percent of their assets in OZ property.
An OZ business includes a trade or business in which substantially all of the tangible property owned or leased by the taxpayer is O-Zone business property and at least 50 percent of income is derived from active conduct of trade or business, substantial portion of intangible property used in active conduct of business and less than five percent unadjusted basis of property is nonqualified financial property (cash, cash equivalents, long term loans).
Excluded business are “sin businesses,” such as golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack (or other gambling facilities), and any store the principal business of which is the sale of alcoholic beverages for consumption off premises.
O-Zone business properties must be tangible property used in a trade or business and acquired by purchase from an unrelated party (more than 20 percent standard) after Dec. 31, 2017. Original use in the O-Zone must commence with the O-Zone business (or O-Fund) or the O-Zone business (or O-Fund) substantially improves the property in a 30-month period. During substantially all of the holding period, substantially also the use is in an O-Zone.
While the U.S. Treasury has certified the nominations of and designated the O-Zones for all states, guidance is still needed on many important issues, such as self certification requirements of O-Funds and grace periods for O-Fund and O-Zone business to make investments. The expectation is that the IRS will release information regarding these questions at some point in the near future.
“Investing in your community is great, but it also needs to make economic sense,” Brinkley said, encouraging people not to use an Opportunity Zone to make a project work, but “to make a good project event better.”
Later in the seminar, Jana Persky, from the Colorado Office of Economic Development and International Trade, mentioned that the entire program is through self-certification and tax returns. “That’s something that’s really exciting about the project, because it allows things to move at market speed. It reduces the bureaucracy,” she said.
The state does believe it has a role to play in using this incentive for what it’s truly designed for, which is “investment that will benefit communities around the state.” To do that they have created a website, choosecolorado.com, with information about O-Zones, and they are working on another website that will help investors find projects around the state they might be interested in. That website will be live some time after Thanksgiving.
“We don’t think Opportunity Zones are going to fix every problem Colorado faces, but we do think we will see some benefits,” Persky said.
The seminar was sponsored by Morgan, Logan, Phillips, Yuma and Sedgwick County Economic Development, NJC, Snell and Wilmer and the Colorado Office of Economic Development.
Callie Jones: 970-526-9286, email@example.com
Originally Published on November 18, 2018 at 11:05PM
Article published originally via opportunity zones – Google News http://www.journal-advocate.com/sterling-local_news/ci_32279673/new-opportunity-zones-program-offers-tax-incentive-investors