Another Handy Halloween Treat!

No trick! Opportunity zones are your treat this Halloween.  Year-end tax planning, the stock markets, and opportunity zones are all on a high speed merge around the country. Hopefully, the information is getting to the correct people, but even if you are seeing this for the first time, you still have time to get educated and perhaps take advantage.  Let’s break it down. Opportunity zones are a new governmental offensive to bring targeted areas around the country jobs and investment in infrastructure. There are many layers and details, but for this purpose, we will stick to a high-level discussion and focus on two parts.

Part one:  What are they?  They are specific, clearly defined geographic areas around the country.  Opportunity zones have now been designated covering all 50 states, as well as the District of Columbia and five U.S. territories.  The opportunity is to make either a new investment or rollover prior investments (stocks or property with current gains or losses) into investments that are physically inside the zones.  They have rules such as minimum new jobs created or minimum improvements to physical buildings etc., but all very attainable.  Most folks, of course, don’t have the appetite to tackle those details, so the common practice we have seen is that the entrepreneur creates the project and you simply come in as an investor under their plan.  You could do your own of course, as long as you follow the rules.

Part two:  What is the opportunity?  The tax planning around the zones is a win-win like investors haven’t seen in quite a while. There is a long list of investments that give tax credits which have been around in different forms for years.  Oil and Gas drilling credits, solar credits, conservation easements credits and on and on.  But usually those tax savings opportunities have been limited to accredited investors (Investors with a large net worth or large W-2 income).  Happily, the opportunity zones aren’t limited to just that club.  Although some investors may limit their programs, many do not, so anyone who wants to delay a capital gain for years and earn a bonus step up in the value of those investments may play.  As an example, anyone with a perhaps healthy fear of a stock market correction who wants to rebalance winners or take winnings off the table can have a generous amount of time to find an opportunity zone and invest just the gain they have made, and not have it show up on a tax return until 2026.