U.S. Treasury provides Opportunity Zone investor clarity
By Randy Soulier, COO LDF Business Development Corp.
Under current U.S Treasury Department guidance, investors seeking to maximize capital gains benefits by investing in Opportunity Zones have six months to engage.
For the first part of this year, direction on what investments would qualify, and other guideposts for investors and their advisors, remained unclear. The recently released second round of guidance by the Treasury, however, provides a footing for investment decisions in greater detail.
Wisconsin has 120 Opportunity Zones. Seven of those Opportunity Zones exist in the eight counties and three tribal nations covered by Grow North, an economic development organization here in the Northwoods. Opportunity Zones were created on the heels of the federal 2017 Tax Cuts and Jobs Act. The program is designed to drive long-term capital to rural and low-income urban communities throughout the nation. Tax incentives on capital gains are used to encourage private investment in impact funds.
Wall Street is forming huge investment funds to infuse capital gains into developments in Opportunity Zones nationwide. The likelihood of Wall Street investing in Northwoods Wisconsin Opportunity Zones is slim, however.
What’s more likely is attracting capital gains from investors who are permanent year-round residents in counties such as Vilas, Oneida, Iron, and other northern Wisconsin communities. Or, seasonal residents, with summer homes in northern Wisconsin, who live in Chicago or Northern Illinois, Milwaukee, Madison and Southern Wisconsin. These investors seem most likely to invest in communities they want to see improve, as they are neighbors for all or part of the year.
According to a recent Milwaukee Business Journal article on Opportunity Zones, Rebecca Mitich, a partner in the Milwaukee law office of Husch Blackwell LLP, said a similar approach (to large national funds) could work at a local level through funds created for specific communities to funnel money into multiple projects.
“I think probably the best solution to get the dollars flowing is to have local funds,” Mitich says in the Milwaukee Business Journal. “Economic development groups are looking at where can they find fund managers that can create the funds, and they can point those fund managers to their investors and also have a large say in where those dollars go.”
According to the Wisconsin Housing and Economic Development Authority (WHEDA), Opportunity Zones are the largest federal economic development program in the last 15 years. Lac du Flambeau is an Opportunity Zone, with 119 others designated across Wisconsin.
WHEDA is working to couple its development tools with the federal Opportunity Zone tools to enhance the power and attractiveness of investment. -MORE-
U.S. Treasury Clarifies Opportunity Zone Investments
According to Certified Public Accountant Michael Novogradac, the new Treasury guidance “brings added regulatory clarity for investors, fund managers and others seeking to bring much needed equity capital to operating and real estate businesses in Opportunity Zones.”
Novogradac offers a treasure trove of insights on Opportunity Zones on Novoco.com. As part of the tax reform bill of 2017, there’s has been excitement and optimism about the potential benefits to investors and communities historically under-capitalized for development, he writes. Novogradac sees the latest guidance as actionable.
“[This] guidance release means the Opportunity Zone community has actionable clarity on significant tax issues,” he says. “The regulations are proposed, and Treasury will accept comments for 60 days, but the preamble to the regulations says that taxpayers and Qualified Opportunity Funds (QOF) may generally rely on the proposed regulations now, if they apply the rules consistently and in their entirety.”
Until recently, there were many unanswered questions of Opportunity Zone investing. The biggest takeaway from the latest guidance by the Treasury, writes Novogradac on his firm’s Opportunity Zone Resource Center blog, “is that the guidance addresses gating issues that were limiting Opportunity Zone-incented investment in operating businesses, and provides added tax clarity to the start-up, operation and wind-down of a QOF.”
While further guidance on some issues remains to be seen, there appears significant commitment to the guidance so more investors are feeling empowered to act.
Since enactment of Opportunity Zones, Novogradac writes on his blog, “Many investors and fund managers have been identifying and underwriting investments, organizing funds, and otherwise preparing to invest in distressed areas. But the scope and breadth of investment was somewhat limited as investors, fund managers, business owners, and others, eagerly and anxiously awaited additional tax guidance from Treasury.”
With this latest guidance, there seems enough foundation to move forward on investments in Opportunity Zones. If done right, there appears an opportunity to create a winning future from multiple perspectives.
Randy Soulier is COO of LDF Business Development Corporation (LDFBDC.com). His 20+ years of business
experience includes leadership roles in operations and marketing. He holds degrees in Marketing and
Integrative Leadership with emphasis in Human Development. Randy also serves as President of LDF
Construction and is a board member for the Vilas Country Economic Development Corporation and the
North Central Wisconsin Workforce Development Board, Inc.
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