In an article published in the May 2019 issue of Virginia Business, Jamie Canup discusses opportunity zones (OZs) in Virginia and the capital gains tax benefits for potential investors associated with these zones. OZs aim to encourage economic development in low-income neighborhoods by offering tax benefits to investors and developers.
For some, OZs present a chance to showcase development opportunities around town while highlighting completed projects that have boosted the local economy. The newly created tax benefit also offers incentives to businesses looking to develop in the designated zones through qualified opportunity zone funds. As a part of the Tax Cuts and Jobs Act, these zones offer investors the chance to defer and reduce taxes on capital gains made in said zones. These funds can go toward a number of projects, including acquiring commercial real estate, opening a new business in a designated zone or expanding existing business to one of these zones.
Though prompting much excitement, Opportunity Zones also raise the question of what investments in businesses would qualify for these tax benefits. Rather than wait for a clear answer, many localities are already fine-tuning their development pitches to investors. One key benefit, however, is that investments held in an opportunity zone for more than 10 years become tax free, though this does not apply to original capital gains – which are only eligible for a deferral or reduction.
Jamie explains that while these real estate / development deals were already attractive, the opportunity zone tax benefits encourage those on the fence to take the plunge. “The tax benefits basically goose it up,” Jamie says. “But if a deal isn’t interesting to begin with, then I think the tax benefits aren’t going to make it into a good deal.”
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Kristen M. Chatterton