Opportunity Zone

Overview of the Opportunity

take advantage of one bridge street offering

capital gains opportunity zone

The project is located in an Opportunity Zone, and as such investors may be able to utilize the tax incentives associates with developments in these locations. Opportunity Zones are a relatively new community development program created under the Tax Cuts and Jobs Act (Public Law NO. 115-97).

206 North First Avenue is located within an Opportunity Zone (OZ), which will provide capital gains tax relief to qualified investors involved in the development. The Federal OZ Program allows each state’s governor to nominate up to 25% of the qualifying low-income Census tracts as OZs. It was created under a provision of the Tax Cuts and Jobs Act, which was signed into law in December 2017, allowing investors to roll capital gains tax liabilities into new investments on a tax-deferred basis through Qualified Opportunity Funds. Taxpayers become eligible to receive significant tax benefits in three ways:

Capital Gains Deferral:

Allows a taxpayer 180 days to reinvest capital gains into a QOZ. Reinvesting capital gains allows taxpayers to defer capital gains tax until the “Recognition Date”, which is the earlier of the date the OZ property is disposed of or December 31, 2026.

Step-Up in Basis:

At the time of investment in the Qualified Opportunity Fund, the deferred gain basis begins at 0. After five years, the basis increases to 10%.

Capital Gains Exclusion:

If a taxpayer holds the investment in the Qualified Opportunity Fund for 10 years and meets the original use or substantial improvement qualification, then the taxpayer will not pay capital gains tax on the appreciation of the investment.

There are several significant income tax benefits can be obtained by investing in a qualified Opportunity Zone Fund, including the following:

An investor can defer the taxation of reinvested capital gains invested in an Opportunity Fund for federal tax purposes. This deferral is only available for capital gains realized and reinvested within specified time frames. The deferral will only last until December 31, 2026, at which time the deferred amount, except as noted below, will be subject to tax at the then current federal capital gains rate.

The other primary benefit is considered by many to be the greatest. This benefit allows for the permanent exclusion from federal taxable income on capital gains from the ultimate sale or exchange of an investment in an Opportunity Fund, provided that the initial investment is held for at least ten years. The excluded amount only applies to gains realized after the investment in an Opportunity Zone occurs. For example, if an individual invests $1 million in an Opportunity Fund and holds that investment for at least ten years, and then sells the investment for $1.8 million, the $800,000 gain would be excluded from federal taxable income!

An Opportunity Zone Fund may invest in various types of properties and/or businesses located within an Opportunity Zone. In the case of the One Bridge Street project, the primary benefit pertains to the to-be constructed living units. To be able to take advantage of the above-mentioned federal tax benefits, the Opportunity Zone Fund would need to invest (purchase) in newly constructed units and the first use of such units would need to as rental units. Once the investments are made, the Fund may be able to avail itself to the additional benefits pertaining to the ownership and operation of rental real estate, including component depreciation. The realization of such benefits that will ultimately pass through to, and be utilized by each investor, will be based upon each investor’s personal tax situation.