Signed into law in late 2017, the Tax Cuts and Jobs Act of 2017 serves to incentivize investment in distressed communities by allowing the re-investment of assets, otherwise subject to a taxable gain, in a Qualified Opportunity Zone.
Qualified Opportunity Zones are low income communities nominated by the governor of each U.S. state where reinvigoration and revitalization are needed.
Leveraging Opportunity Zones allows investors to take advantage of a tax deferral and partial exclusion on the reinvested gains. If the investment is held for at least 10 years, the appreciation on the investment in a Qualified Opportunity Zone is not subject to Federal income tax. The U.S. Treasury then certified the nominated census tracts in June 2018. Those approved and certified census tracts can be found HERE.
A Qualified Opportunity Fund must be set up either an individual, a partnership, or a corporation to invest in a Qualified Opportunity Zone. To setup a Qualified Opportunity Fund, an eligible taxpayer self-certifies by completing an IRS form and attaching that form to the taxpayer’s federal income tax return for the taxable year.
What can an Opportunity Fund invest in?
The act enables Opportunity Funds to be responsive to the needs of different communities, allowing for investment in operating businesses, equipment, and real property. For example, funds can make equity investments in or purchase the stock of a company if substantially all of the company’s tangible property is and remains located in an Opportunity Zone. Funds can take interests in partnerships that meet the same criteria. Funds can also invest directly in qualifying property, such as real estate or infrastructure, if the property is used in the active conduct of a business and if either the original use of the property commences with the fund or the fund substantially improves the property. Treasury has yet to release guidance on the substantial improvement test.
Additionally, Opportunity Funds can invest in multiple Opportunity Zones. An Opportunity Fund must invest at least 90% of its assets in qualified Opportunity Zone property, whether in one zone or across multiple zones.
How does this benefit St. Pete?
There are 427 certified Qualified Opportunity Zones in Florida; 16 of which are located in Pinellas County. Of the 16 in Pinellas County, 7 of those, have an extremely close proximity to downtown St. Pete, with 1 additional just northwest of downtown (between 275/19 and 38th/62nd N). The proximity of these areas to downtown creates exceptional opportunities for investors to take of advantage of the already booming resurgence of downtown St. Pete as it sprawls out to surrounding areas and communities.
Furthermore, the Tropicana Field Site and the surrounding areas have been designated and approved as Opportunity Zone. This designation will incentivize investments into the area as development of the Trop Site move forward, likely without the Tampa Bay Rays.
For more information about Opportunity Zones and Opportunity Funds, visit:
- IRS — Opportunity Zones Frequently Asked Questions
- US Department of Treasury — Opportunity Zones Resources
- Florida Department of Economic Opportunity — Opportunity Zones Program
Disclaimer: The information contained in this post is based on research conducted by the St. Petersburg EDC. Before investing in an Opportunity Zone or Opportunity Fund, you should conduct your own research, as well as consult a tax and/or legal professional.