Risk & Business Magazine Hardenbergh Insurance Group Magazine Winter 2018 | Page 25

TAX LAWS
Opportunity Zones
And The New Tax Law
A
re you in the market to open a business in a low-
income neighborhood? If so, now is the right time to
do it. A tax law enacted in 2017 includes tax breaks
for Opportunity Zones, which, according to the IRS,
is an economically distressed community where new
investments might be eligible for preferential tax treatment.
To qualify as an Opportunity Zone, a state must nominate a
particular area for such designation that must then be certified by
the Secretary of the Treasury. The first set of Opportunity Zones—
BY: HARRY P. WILLS III
covering parts of 18 states—were designated in April of this year,
but the government has not yet released detailed regulations on the
zones.
To invest in an Opportunity Zone, investors can put realized capital
gains into Opportunity Funds that act as investment vehicles,
driving cash flow into low-income communities. The funds can
connect investors to investment opportunities in the zones and can
possibly eliminate the tax liability on the funds.
Opportunity Zones give investors increasing discounts on capital
gains the longer the asset is held in the designated zones. Investors
who hold a property for at least five years in an Opportunity Zone
receive a 10 percent break; those who hold it for seven years receive
a 15 percent break.
As a separate benefit, an investor can forgo paying capital gains
taxes on the appreciation of an investment in Opportunity Zones if
the asset is held for at least 10 years.
Because the capital gains deferment ends on December 31, 2026,
the window is closing for investors who want to take full advantage
of the 15 percent concession. As an investor, you have until
December 31, 2019, if you want to benefit from the entire seven-
year tax break.
More than nine months after it began, the program still has many
unanswered questions. The rules in the initial legislation allow
almost any property to qualify as long as it is in an Opportunity
Zone. But, would a developer qualify for the program if the
developer were to refinance a property in an Opportunity Zone? Or
would leasing a business meet the parameters of an opportunity
fund? Also, would projects that have already broken ground count?
The Treasury Department and the IRS are expected to provide more
details in the coming weeks. +
Harry P. Wills III joined the firm in 1986 and was admitted as a partner
in 1997. He is licensed to practice as a Certified Public Accountant
in New Jersey and Pennsylvania and is also a Chartered Global
Management Accountant. Harry earned his Bachelor of Science
degree in Business Administration from Saint Joseph’s University.
Mr. Wills’ area of focus is in taxation and the audits of employee benefit
plans. His clients include law firms, insurance agencies, construction
and manufacturing corporations, wholesalers and distributors, hotels,
and investment entities.
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