March 29, 2024

Deadline Nears on Top Opportunity Zone Returns

Opportunity Zone

Opportunity Zone investing is complicated. And now the pressure is on to invest by December 31, 2019, to achieve the maximum tax benefits from the new federal tax deferral program. Cathy Askey of Askey, Askey & Associates, CPA, LLC, unpacked the basics of the new program at a briefing last month in the heart of the Opportunity Zone in Lexington Park, MD.

Opportunity Zone tax deferral benefits apply only to capital gains and only capital gains can be invested into Opportunity Zones or Opportunity Zone Funds.

Taxpayers investing their capital gains in designated Opportunity Zones or qualified Opportunity Zone Funds this year can defer capital gains taxes through 2026. Remaining invested for those seven years additionally reduces their original capital gains tax exposure by 15 percent. (After five years there is a 10 percent reduction. After two more years an additional 5 percent tax reduction is given.)

Remaining invested in the Opportunity Zone for another three years will additionally eliminate taxes on gains made on that Opportunity Zone investment.

To reach that full 10-year benefit — the seven years of capital gains tax deferrals, 15 percent capital gains tax reduction, and elimination of taxes on gain from the Opportunity Zone investment — requires investing 2019 capital gains into a Qualified Opportunity Zone or a Qualified Opportunity Zone Fund by December 31, 2019. The 2018 legislation designed to move private investment into low-income neighborhoods sunsets December 31, 2028. And while Ms. Askey noted there is nothing to say the legislation will not be extended, there is nothing in law right now that says it will be.

Although the program is complicated, firms such as Askey, Askey & Associates, CPA, LLC, have developed expertise to assist taxpayers with capital gains to protect and invest. And the effort is worthwhile, Ms. Askey repeated during the briefing, because the benefits are significant.

“No tax this year on your gain. Each year (for seven years), no tax,” she said. “At the end of seven years, tax on 85 percent. That’s December 2026. Then another three years, any gain from your investment in the Opportunity Zone, no taxes.”

Investors can be individuals, most types of corporations, trusts, or estates. There are 8,700 Qualified Opportunity Zones in the nation, delineated by governors based upon US Census identified areas of high poverty rates. There are 149 in Maryland, a half-dozen split between Charles and Calvert counties and one in Lexington Park in St. Mary’s County.

Ms. Askey described the program’s potential as a “powerful tax savings and economic development tool.” There are still a few details the US Department of Treasury is working out, but even so, the tax savings and development benefits are apparent. If Opportunity Zones work as some government leaders have anticipated, projected investments could top $100 billion through the life of the program, Ms. Askey said.

The briefing, sponsored by St. Mary’s County Department of Economic Development, was held at the headquarters of government contractor Avian, located on Route 235 within the Lexington Park Opportunity Zone. A few dozen potential investors and owners of property within the Lexington Park Opportunity Zone attended the briefing. Homeowners were assured by Chris McNelis of the McNelis Group out of Calvert County and Charles Rosenfield of Morgan Stanley out of Charles County that the Opportunity Zone designation would more likely increase their property value than decrease it; there is now added investment value on Opportunity Zone properties.

The national  map of Opportunity Zones has been produced by the Economic Innovation Group showing the location of the 8,700 Qualified Opportunity Zones.

For more information on investing in Opportunity Zones or an Opportunity Zone Fund contact Askey, Askey & Associates, CPA, LLC, at either full-service office in Leonardtown, MD, or La Plata, MD.

Leonardtown, MD:  23507 Hollywood Road, P.O. Box 662, Leonardtown, MD 20650, phone: (301) 475-5671.

La Plata, MD: 105 Centennial Street, Suite D, La Plata, MD 20646, phone: (301) 934-5780.

For more about Askey, Askey & Associates, CPA, LLC, visit their Leader Member Page, Facebook or LinkedIn.

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