Investors with ventures along much of Market Street in West Philadelphia and Broad Street in North Philadelphia, as well as neighborhoods such as Mantua, Point Breeze, and Brewerytown, may be in for new tax breaks under a federal program designed to promote development in rural and low-income urban communities nationwide.
The incentives offer deferral, reduction, and potential elimination of some federal taxes for capital gains from investing in businesses, real estate, and other ventures in low-income communities.
The PA Department of Community & Economic Development provides some additional insights on the Qualified Opportunity Zones in PA.
Investments made by individuals through special funds in these zones would be allowed to defer or eliminate federal taxes on capital gains.
The governor was given the opportunity to designate up to 25 percent of census tracts that either have poverty rates of at least 20 percent or median family incomes of no more than 80 percent of statewide or metropolitan area family income.
There are nearly 1,200 eligible census tracts and the governor designated 300 tracts based on economic data, recommendations from local partners, and the likelihood of private-sector investment in those tracts.
As mentioned the Qualified Opportunity Zones were created during the tax cuts in December. Below is some additional information on the Qualified Opportunity Zones from the Treasury Departments recent press release.
Under the Tax Cuts and Jobs Act, States, D.C., and U.S. possessions nominate low-income communities to be designated as Qualified Opportunity Zones, which are eligible for the tax benefit. States were required by March 21st to submit nominations or request a 30-day extension to submit nominations.
Treasury has 30 days from the date of submission to designate the nominated zones. Treasury today has designated the nominations of all States that submitted by the March 21st deadline. Treasury will make future designations as submissions by the states that have requested an extension are received and certified.
“I am very excited about the prospects for Opportunity Zones. Attracting needed private investment into these low-income communities will lead to their economic revitalization, and ensure economic growth is experienced throughout the nation,” said Secretary Steven T. Mnuchin. “The Administration will continue working with States and the private sector to encourage investment and development in Opportunity Zones and other economically disadvantaged areas and boost economic growth and job creation.”
Submissions were approved today for: American Samoa; Arizona; California; Colorado; Georgia; Idaho; Kentucky; Michigan; Mississippi; Nebraska; New Jersey; Oklahoma; Puerto Rico; South Carolina; South Dakota; Vermont; Virgin Islands; and Wisconsin.
Qualified Opportunity Zones retain this designation for 10 years. Investors can defer tax on any prior gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund, an investment vehicle organized to make investments in Qualified Opportunity Zones.
In addition, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor would be eligible for an increase in its basis equal to the fair market value of the investment on the date that it is sold.
Treasury and the IRS plan to issue additional information on Qualified Opportunity Funds. The additional guidance will address the certification of Opportunity Funds, which are required to have at least 90 percent of fund assets invested in Opportunity Zones.
Looks like many of the predictions on how the tax cuts could positively affect commercial real estate, are beginning to look truer. There will be some tremendous opportunity in the coming months as investors begin to scour these areas for good opportunity.