Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here with Martin Euson, a director on our tax team. Martin, welcome back to the Playbook.
Martin: Thanks, Jen. I’m glad to be here.
Jen: So, I’ve heard a little bit about the Opportunity Zone Program. What is it?
Martin: The Opportunity Zone Program is a new program that was created as a result of the Tax Cuts and Jobs Act that, as we know, was signed into law last December, and the program is really aimed at encouraging private investment and development into areas that are historically distressed communities or low-income communities across the United States. And in exchange for that, investors are given some pretty significant tax benefits.
Jen: We’re in Houston – are there areas where we can feel the impact locally?
Martin: Oh, absolutely. In Houston, alone, there are more than 100 Opportunity Zone designations. If you look at a map of inside the Beltway, most of Downtown Houston has the Opportunity Zone designation and much of the area to the east of Downtown. So, more than 100 areas inside of Houston, across the state of Texas more than 600 areas were designated Opportunity Zones, and so, it should have a very significant impact at the local level.
Jen: So, Martin, what kind of incentives exist for investment in these Opportunity Zones?
Martin: So, the incentive, Jen, really is a tax incentive. Investors who invest in Opportunity Zones can benefit from three different types of tax incentives:
- The first one being deferral of gain from a recent sale or exchange transaction when that gain is reinvested into an Opportunity Zone area. And that gain can be deferred as long as December 31 of 2026, and so, that’s a pretty significant deferral just that length of time.
- The second tax benefit comes from investors being able to eliminate up to 15% of the gain on the investment or the gain that they’re reinvesting into a qualified Opportunity Zone.
- And the third tax benefit that investors can receive is avoiding tax on the gain associate with the investment in the Opportunity Zone and avoid paying tax all together if the investment’s held for at least 10 years.
Jen: So where can our viewers find out more information about where these Opportunity Zones are?
Martin: The IRS website has put together a very comprehensive FAQ section that addresses a lot of questions associated with the program. There’s also a map of the United States, and it can be scaled down to Texas and down to Houston.
Jen: Okay, perfect.
Jen: Sounds good. Now is there any specific industry that this impacts, or it’s pretty much anybody can invest in these Opportunity Zones?
Martin: There are some prohibited investments when you get into recreation and entertainment, things like that, and there are a lot of nuances that go along with it from a tax perspective and from the type of investment perspective. So, the best thing to do would be either to check out the FAQ sections or to consult with your PKF tax advisor.
Jen: Come talk to you. All right, perfect. We’ll get you back to talk a little bit more about it, sound good?
Martin: All right, thanks, Jen.
Jen: This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.