Opportunity Zones were enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act) to address uneven economic recovery and persistent lack of growth that have left many communities across the country behind. In the broadest sense, the newly enacted federal Opportunity Zone (OZ) program provides a federal tax incentive for investors to invest in low-income urban and rural communities through favorable treatment of reinvested capital gains and forgiveness of tax on new capital gains. In Colorado, Opportunity Zones may help address a number of challenges:
- Promoting economic vitality in parts of the state that have not shared in the general prosperity over the past few years
- Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages
- Funding new infrastructure to support population and economic growth
- Investing in startup businesses that have potential for rapid increases in scale and the ability to “export” outside the state of Colorado
- Upgrading the capability of existing underutilized assets through capital improvement investments
This economic and community development tax incentive program provides a new impetus for private investors to support distressed communities through private equity investments in businesses and real estate ventures. The incentive is deferral, reduction and potential elimination of certain federal capital gains taxes.
U.S. investors currently hold trillions of dollars in unrealized capital gains in stocks and mutual funds alone— this is a significant untapped resource for economic development. Opportunity Funds provide investors the chance to put that money to work rebuilding the nation’s distressed communities. The fund model will enable a broad array of private equity fund managers and investors to pool their resources, increasing the scale of investments going to under-served areas.
There are currently trillions of unrealized capital gains sitting on balance sheets across the country. An Opportunity Zone market is already beginning to develop, and much of this capital is actively seeking projects. In order to ensure that communities are able to successfully attract capital to projects that the community wants and that will benefit the citizens, stakeholders will need to organize themselves to build prospectuses, structure deals and add incentives that are attractive to investors, and work to engage investors.
Through the Department of Local Affairs, there are grants available to support communities in prospectus building or developing projects. Click here for more information.
Guidance for Communities:
1. Be Proactive – The best way to ensure that your community attracts the investment it would like, you must make those projects the most attractive and the easiest to find. If you do not take a seat at the table, investment will happen to your community instead of with your community.
2. Urgency is Key – To realize the full benefits of the incentive, an Opportunity Zone investment must occur before the end of 2019. While OZ investments will continue after this date, communities and projects that organize themselves quickly will have an easier time attracting capital.
3. Think like an Investor – The Opportunity Zone incentive will not make a bad project good, but instead will help bring a good project over the finish line. Focus on projects that will help investors realize a return, and consider what your community can do to increase that return even more.
4. Layer Additional Programs and Incentives – In the right situation, Opportunity Zone incentives can be used in conjunction with Enterprise Zones, New Market Tax Credits, TIFs, LIHTC, land donations, fast-tracked permitting, and many other programs. Consider what else your community can add to make a desired project them as attractive as possible to investors.
5. Opportunity Zones are Another Tool in the Toolkit – There will be some projects that are not well-suited for Opportunity Zones, or problems that Opportunity Zones can’t solve. Think about how Opportunity Zones can fit into your existing economic development tools, because in the right situation, the incentive can be catalytic.
To learn more click here.
Montrose Opportunity Zone Seminar is being held at the Centennial Room November 8th, 2018 11am-12pm, 433 1st St. Contact ChelseaRosty for further details.