There’s a new resource that is powering community development and has business owners and investors flocking to it. Opportunity Zones, passed in 2017 from the Tax Cuts and Jobs Act, are aimed at spurring economic development and job creation in low-income communities while providing tax incentives.
Currently, California has 879 designated opportunity zones where more than 3,000,000 Californians live. Potential investors or business owners can get an attractive return on their investment while benefiting from lower, deferred or eliminated taxes on the capital gains.
Opportunity Zones offer a federal tax benefit that is broken into three parts: (1) deferral of any capital gains invested in a qualified opportunity fund (QOF) generally until 2026, (2) exclusion of up to 15% (or more) of the deferred gains from gross income, and (3) a tax-free gain for a QOF interest sold or exchanged after 10 years (through 2047).
“Individuals and small business owners who have a large capital gain can use Opportunity Zones for tax deferments and other benefits,” said Jacob Richards, Commercial Banker and Senior Vice President at California Bank & Trust, “On the flipside, the government is using it to grow and improve the community.”
As a tool for revitalizing low-income areas, Opportunity Zones attract investors to create Qualified Opportunity Funds (QOF), which can be used to invest in equipment, buildings, property and jump starting or expanding a business.
From there, a wide array of community supported projects can be funded for renewable energy, affordable housing and other worthwhile initiatives. At the same time, Opportunity Zones can be used to create innovation and small business hubs to support local businesses and entrepreneurs.
Richards echoed the benefits that resulted from a refrigeration manufacturing client moving into an Opportunity Zone.
“My client had huge taxes due to the sale of his company,” he said. “When he purchased property in an Opportunity Zone, it helped him offset capital gains by deferring taxes, which lowered his overall taxes in that year and the future.”
Opportunity zone projects can offer your business a long-term investment and tax relief. Talk to your banker about reaping the benefits of moving operations and investments to these designated areas. For a list of California Opportunity Zones, review this list: https://opzones.ca.gov/oz-map/. [cite::171::cite][cite::172::cite]