Opportunity zones offer incentives to investors who are willing to buy properties in neighborhoods they might have otherwise not considered. While there have always been incentives in place through various state and local programs, this is part of the federal tax code, which was included in the Tax Cuts and Jobs Act in 2017.
If you’re thinking of investing in Columbus real estate and are interested in Opportunity Zones, there are a few things you need to know.
What Are Opportunity Zones
The Internal Revenue Service defines an Opportunity Zone as an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the U.S. Treasury via his delegation of authority to the Internal Revenue Service.
Columbus has set up certain areas of town where the city believes it can benefit from investment money. There are 44 approved Opportunity Zones in Franklin County, and 39 of those are specific to Columbus. The five main zones in the city are broken down into the Eastside Opportunity Zone, Northeast Opportunity Zone, Northwest Opportunity Zone, Westside Opportunity Zone, and Southside Opportunity Zone.
Benefits of Opportunity Zones
There are a number of benefits to investing in an Opportunity Zone. The main benefit, of course, is that you’re contributing to the community and building better housing that everyone in Columbus can access. There are financial benefits as well:
- Any capital gains can be temporarily deferred when re-invested in an Opportunity Fund. So, if you sell a mutual fund and buy property with that money, you won’t have to pay capital gains taxes as long as you make a qualified investment.
- There’s a step-up in basis for any capital gains re-invested in an Opportunity Fund. The basis increase is 10 percent if you hold the investment for five years, and then it jumps to 15 percent if you hold the investment for 7 years.
- If you hold the investment for more than 10 years, you’ll get a permanent exclusion from taxable capital gains income from the sale or exchange of the qualified property.
Investors looking for some great rental real estate with additional tax benefits would do well to consider buying in one of these Opportunity Zones.
Establishing an Opportunity Fund
You can only invest in an Opportunity Zone through an Opportunity Fund. There aren’t a lot of limitations in how Opportunity Funds can be set up and who can run them. However, it has to be a partnership or a corporation, and the Fund has to be set up, managed, and registered according to the regulations of the U.S. Treasury Department. At least 90 percent of the money invested in an Opportunity Fund must be spent in Opportunity Zones, through real estate or business operations.
Contact us at Solutions for Real Estate if you’d like to talk about the opportunities you have with this program, or if you’d like to see a detailed map of where these Opportunity Zones in Columbus are located.