Tax incentives available by investing in Opportunity Zones in Austin
What is an opportunity zone?
Opportunity zones are part of a federal tax incentive provision that was created by the 2017 Tax Cuts and Jobs Act. Essentially investors can take their capital gains (earned from real estate or other sources) and re-invest those capital gains into Qualified Opportunity Zone Funds.
In turn, the Fund invests in projects located in designated census tracts called "opportunity zones." The investments take a variety of formats, such as improving or developing residential properties or investing in businesses that benefit the local community in some way.
Learn more on Episode 019 of Calls with Paul when we visit with Cindy Yates of Capital Title of Texas to learn a little info about investing capital gains in Opportunity Zones with a possibility of ZERO tax liability on your future gains!
What's in it for the investor?
A lot! As a benefit of investing in the Qualified Opportunity Zone Funds, investors receive a decrease, deferral, and possible exclusion of capital gain tax liabilities. Plus, you get to feel good about investing in the community.
What kind of tax incentives are we talking about?
There are three types of tax incentives in which investors may realize deferred, decreased, or permanently excluded capital gains based on the amount of time the funds remain within a Qualified Opportunity Zone Fund. You'll want to talk to a tax pro, but here's the gist of it to our understanding:
Temporary Tax Deferral: A deferral of capital gains realized after 2017 and reinvested into a Qualified Opportunity Zone Fund.
Step-Up in Basis: A step-up in basis of up to 15%, subject to meeting reinvestment period thresholds of 5 years (+10%) and 7 years (+5%).
Permanent Exclusion: The permanent exclusion of capital gains realized from the investment in a Qualified Opportunity Zone Fund, if the investment is held for at least 10 years. Depending on the type of investment, this can be a HUGE benefit to the investor.
Alright, so where are the opportunity zones located in Austin?
There are twenty-one (21) census tracts designated as Opportunity Zones in the City of Austin. The majority of zones are located to the east of Interstate 35. There are also opportunity zones located in other parts of the state, including towns like Paducah, Texas. You can learn more about the areas that qualify and see a visual map using this link.
Are there any deadlines?
Yes! If you're interested in maximizing your program benefits, there is a December 31, 2019 deadline looming. There's still time to invest your capital gains in the Qualified Opportunity Zone Fund, so start planning!
Dec. 31, 2019 – Last day to invest in Qualified Opportunity Zone Fund to recognize maximum program benefits
Dec. 31, 2021 – Last day to invest in Qualified Opportunity Zone Fund to realize a 10% Step-Up in Basis
Dec. 31, 2026 – Forced recognition of capital gains invested into Qualified Opportunity Zone Funds
Dec. 31, 2028 – Federal designation of Opportunity Zones expires
Where can I learn more?
We are happy to be a resource, particularly if you are considering a real estate investment as part of the deployment of your funds. And because this is a tax program, we recommend you visit with your accountant or tax professional to verify the details. For more information about the program, visit these sites:
Reach out if you're ready to put you're capital gains to work!