- Madison Street Strategies
Jacksonville Business Journal: " What could opportunity zones do for Jacksonville?"
By Will Robinson – Reporter, Jacksonville Business Journal
With investments in Opportunity Zones expected to heat up over the remainder of 2019, more than a hundred people gathered at JaxUSA's Opportunity Zones Conference on Thursday, learning how the investment process works and where on the First Coast those investments can be made.
Opportunity zones, created in tax legislation passed in 2017, are designed to spur investment in low-income districts by making certain census tracts tax havens.
Investors can defer the taxes owed on unrealized capital gains – the only money that qualifies for opportunity zone benefits – when they are reinvested into opportunity zones. Investors don’t pay taxes on that money until they sell their asset or the end of 2026, whichever comes first.
Additionally, if an investor leaves their investment in an opportunity zone asset for five years, 10 percent of their investment becomes tax-exempt. If they wait seven years, 15 percent becomes tax exempt.
Since this seven-year horizon has to be achieved before 2026, the law creates an incentive for opportunity zone investments to occur by the end of 2019.
As another benefit, any gain investors make from their opportunity zone investments will never be taxed. Losses are already tax-exempt.
Of the 8,700 opportunity zones in America, 427 are in Florida – at least one in every county. Twenty-one of these are in Jacksonville, mostly in the Northwest but also in parcels around TIAA Bank Field and around downtown. Yulee and St. Augustine also have opportunity zones.
Florida's zones comprise 1.9 million residents, 1 million jobs and 83,000 businesses. About 29 percent of the residents in these zones live in poverty, nearly twice the state average. The zones also have half as many college graduates as districts in Florida have on average.
Qualifying investments can go into real estate or businesses, but the vast majority go into real estate. Real estate investments are safer bets and face the fewest legal and tax hurdles, speakers noted.
Several speakers stressed that while opportunity zones have financial benefits, they do not make investments profitable on their own.
“Deals have to make sense,” said Carras Community Investment Inc. Principal James Carras. “This is not a subsidy source.”
Because the benefits of opportunity zone investments don’t materialize for years, opportunity zones are also not suited to property flippers, noted Erin Gillespie, founder of Madison Street Strategies, an economic development advisory group.
Investors face additional rules governing their opportunity zone investments.
For example, if an investment is in a business instead of a property, that business has to be headquartered or operating significantly within the zone; if an investment is into a property, the investment has to be for an original use and make a substantial improvement.
The conference delved into the minutiae of tax policies governing opportunity zone investments, and it also considered how public policy can pair with the federal policy to direct investments in under-served areas. Investment groups encouraged city officials to realign districts for existing city incentives and subsidies to double down on encouraging investment in and around areas designated as opportunity zones.