Fed­eral op­por­tu­nity zones of­fer tax in­cen­tives for in­vest­ment

Ac­coun­tant briefs Rome busi­ness lead­ers on one as­pect of tax re­form.

Rome News-Tribune - - FRONT PAGE - By Doug Walker DWalker@RN-T.com

A new fed­er­ally des­ig­nated op­por­tu­nity zone, part of the Tax Cuts and Jobs Act, of­fers sig­nif­i­cant tax ben­e­fits for in­vest­ment in down­town Rome.

Ken White, a Chat­tanooga ac­coun­tant, told the Rome Floyd Cham­ber Eco­nomic De­vel­op­ment com­mit­tee he thinks the op­por­tu­nity zone pro­vi­sions are among the best as­pects of the law pushed through by the Trump ad­min­is­tra­tion.

Lo­cal in­vestors can use the law for job cre­ation as well as real es­tate in­vest­ments, Cham­ber Pres­i­dent Al Hodge told com­mit­tee mem­bers.

“Rome is al­ready poised to take ad­van­tage of this,” White said.

Once pro­vi­sions are fully un­der­stood by ac­coun­tants and in­vestors, he said it could po­ten­tially en­tice even more in­vest­ment in down­town Rome, of­fer­ing both de­ferred and com­pletely free tax ad­van­tages

The fed­er­ally des­ig­nated zones stretch from a point just south of Dar­ling­ton Drive off U.S. 27 south through down­town, be­tween the rivers and up U.S. 27 north to John Daven­port Drive and all the way out the north side of Shorter Av­enue to Sycamore Street.

The area en­com­passes cen­sus tracts iden­ti­fied by the fed­eral gov­ern­ment as low-in­come or dis­ad­van­taged cen­sus tracts.

“This is all about grow­ing and cre­at­ing jobs and pulling peo­ple out of poverty and that was Congress’s in­tent,” White said.

The law ap­plies to the ac­qui­si­tion of new prop­er­ties in 2018.

“It can be ex­ist­ing prop­erty, older prop­erty like the Ge­or­gia Power build­ing,” White said.

In­vestors put funds, typ­i­cally both short and long term cap­i­tal gains, in a qual­i­fied op­por­tu­nity zone in­vest­ment fund. Funds have to be in­vested within 180 days of tak­ing a cap­i­tal gain trans­ac­tion, but can hold funds for up to 30 months as long as the part­ner­ship files a bona fide writ­ten rein­vest­ment plan.

“This is good for sell­ing stock, it’s good for di­ver­si­fy­ing, re­bal­anc­ing your port­fo­lio with­out pay­ing tax on the gain,” White said.

A qual­i­fied op­por­tu­nity zone fund could be a new cor­po­ra­tion or a new part­ner­ship cre­ated strictly for the pur­pose of in­vest­ing in an op­por­tu­nity zone. A group of lo­cal in­vestors could come to­gether to cre­ate a fund but White said a sin­gle mem­ber LLC would not qual­ify.

“The fund it­self, 90 per­cent has to be in­vested in the op­por­tu­nity zone,” White said.

The law does not al­low ben­e­fits for the ac­qui­si­tion of so-called “sin busi­nesses.”

“Golf course, coun­try clubs, mas­sage par­lors, hot tub fa­cil­i­ties, sun tan fa­cil­i­ties, a race track fa­cil­ity and liquor stores,” White said. “Bars do qual­ify be­cause liquor con­sump­tion on site is fine. If you pur­chase liquor for off-site con­sump­tion that doesn’t qual­ify.”

Sub­stan­tial im­prove­ments to prop­erty is also part of the bill — the fund can’t just buy a build­ing. The ac­coun­tant used the Ge­or­gia Power build­ing at Broad Street and Turner McCall Boule­vard as an ex­am­ple. If a fund were to buy the build­ing, it would have to spend as much as it paid to buy the build­ing, to re­pur­pose the build­ing for res­i­den­tial or some other com­mer­cial use.

The fund has 30 months to ac­com­plish the re­mod­el­ing.

On the other hand, a fund could go out and buy a new build­ing in the op­por­tu­nity zone which has never been used be­fore and the fund would not have to spend any money to re­model it. Raw land could be ac­quired and the fund could put a hut up to do busi­ness out of and qual­ify.

If an in­vest­ment is held for five years taxes are not paid on the year the cap­i­tal gain is made.

“After five years you only pay tax on 90 per­cent of the gain. It’s tax de­ferred, if I hold it seven years, then I only pay tax on 85 per­cent of the gain,” White said.

Ap­pre­ci­a­tion on the in­vest­ment, if held for ten years, comes with no tax what­so­ever on the gain. He said if he in­vested $200,000 into the Ge­or­gia Power build­ing, and it sold 10 years later for $400,000, he wouldn’t pay any tax on the ad­di­tional value of the build­ing. He would pay 85 per­cent on the orig­i­nal $200,000 in­vest­ment. If it sold for $1.2 mil­lion, he would not pay taxes on the mil­lion dol­lar in­crease in value.

Rome neu­ro­sur­geon Dr. John Cowan asked White if there was any risk in mak­ing the in­vest­ments be­cause of po­ten­tial changes in the law.

“It’s al­ways a risk,” White said. “But Congress wants to cre­ate eco­nomic de­vel­op­ment.”

/ Con­trib­uted

Di­a­gram of the fed­er­ally des­ig­nated Op­por­tu­nity Zone that can re­sult in tax ben­e­fits for in­vestors in Rome.

/ Doug Walker

CPA Ken White briefs busi­ness lead­ers on the tax ad­van­tages of fed­eral op­por­tu­nity zones in Rome dur­ing a Cham­ber Eco­nomic De­vel­op­ment com­mit­tee meet­ing Fri­day.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.