When working with a business owner regarding the sale of their business, there is always the discussion of the tax consequences if they do sell their business. While this article is a not a deep dive into Opportunity Zones, it is a very brief overview of arguably the hottest pitch in real estate.
The U.S. government has identified 8,700 geographic areas in the United States in need of economic investment, so enter the Opportunity Zone, which was created by the 2017 Tax Cuts and Jobs Act. The program allows anyone who uses capital gains to invest in an Opportunity Zone — whether that be in a business, real estate development, piece of property or other project — to defer their capital gains taxes while they hold the investments. The program helps address unique needs by forming partnerships between the federal government, with regard to tax benefits, state and local leaders and investors to create an incentive that makes it even more possible for people to invest at the point of the need.
“There is something to the effect of $6 trillion in unrealized, unused capital gains (in the United States),” according to Idaho Department of Commerce spokesman Matt Borud.
Investors who roll over money with embedded gains from other investments or from the sale of their business into an Opportunity Zone can defer taxes on those gains for years. If the money remains invested for five years, investors get a 10% break on the gains; after seven years, the tax break rises to 15%. On top of that, the gains in the Opportunity Zone investment itself are tax free after 10 years.
No matter your opinion, it is clear the government is paying attention to all of the stakeholders. This includes potential investors, the local cities where the opportunities reside and the local residents who will ultimately be affected by the projects that move forward.
Investors need to be clear on their investment strategy. They need to consider that the property market in an Opportunity Zone could be depressed when it is time to sell. If the investments sour, there may be a rush to dump them in Year 10.
So, with that said, this does bring up the question, “Is it better to just pay the taxes?” The answer depends on the investors’ specific situation, and we strongly encourage counsel from legal and tax experts who are familiar with Opportunity Zones.
In the last month, a handful of very large projects have been announced in Treasure Valley and Magic Valley. This does show Opportunity Zones are plentiful and the appetite from investors is real. If you are looking at a gain from the sale of your business, are you considering what an Opportunity Zone can do for you?
Ryan Martin is c0-owner of Laska Company and a licensed real estate agent in Idaho. Contact him at (208) 331-1116 or go to LaskaCompany.com for more information.
Laska Company is a licensed real estate broker in Idaho. Laska Company is not offering tax, legal or investment advice.
Learn more at the IBR’s expert forum Opportunity Zones Part 2: Taking Action scheduled for 3:30 to 6 p.m. on Sept. 24 at the Inn at 500 Capitol in downtown Boise. To register, go here.
This article is sponsored content provided by Laska Company.