- Would you love to add another rental property to your portfolio?
- Are you having trouble with financing because you’re already stretched a bit thin?
- Have traditional lenders decided you’ve reached your lending limit?
If this sounds familiar, it’s vital that you learn about Opportunity Zones right away. The aptly named legislation could be the best opportunity you have to add new, promising properties to your portfolio and enjoy an incredible tax break.
What Are Opportunity Zones?
All over the country, there are communities suffering from severe economic limitations. To make matters worse, these areas have very little hope of ever making much of a comeback – at least not on their own.
This is why many of them have been designated as Opportunity Zones. Anyone who invests in their economic revitalization may be qualified for preferential tax treatment.
Opportunity Zones were created by the Tax Cuts and Jobs Act on December 22, 2017. They were largely seen as an attempt to provide relief to those populations that depend on community development programs and affordable housing – people who may not have otherwise benefited greatly from the tax cuts.
One reason to be especially hopeful that this new legislation will reach its desired goal is because it lacks an authorized cap on how much capital may be made available through these investments.
This means an estimated $2.2 trillion worth of unrealized capital gains derived from stocks and mutual funds could be funneled into community revitalization.
Instead of individuals and corporations bearing the full brunt of their federal tax liability, they can defer or reduce it based on the sale of appreciative assets. All they need to do is reinvest those gains into an Opportunity Fund, which leverages its pooled capital for the sake of real estate and small businesses in distressed communities.
Better still, each Opportunity Zone retains their designation for 10 years. So, investors have until December 31st, 2026.
Furthermore, any investors who hold onto their investments in Opportunity Zones for a minimum of 10 years will be eligible for an increase in the Opportunity Fund’s basis equal to the investment’s fair market value based on the date it has been sold.
Therefore, in short, the government will ease an investor’s tax burden on any stocks or mutual funds they sell if they put the money into Opportunity Zones.
Where Are Opportunity Zones Located?
Opportunity Zones exist in 18 different states, though some of these offer more locations than others.
These states are:
- American Samoa
- New Jersey
- Puerto Rico
- South Carolina
- South Dakota
- Virgin Islands
If you want to locate where the specific locations are in a state, check out this very handy map of opportunity zones.
Rental Property Tax Breaks Using Opportunity Zones
Opportunity Zones live up to their name for any investor who has stocks or mutual funds they’d like to offload without suffering the normal taxes for doing so.
In fact, many will most likely part with investments they had no intention of leaving simply so they can take advantage of a first-of-its kind opportunity.
One of the best examples of just how promising Opportunity Zones could prove for investors is rental properties. The legislation doesn’t put any limitations on using capital gains to fund investments in affordable rental housing.
As long as the residential real estate is located within an Opportunity Zone, it is fair game for investors. The only stipulations are that the property is:
- New or Acquired after December 31st, 2017
- Improved substantially
- Meets the statute’s active conduct standard
Each of these is basically a given for any rental property inside of an Opportunity Zone, meaning savvy investors are facing a multitude of options at the moment.
Will You Take Advantage of Opportunity Zones While These Opportunities Still Exist?
Opportunity Zones are truly a unique opening for investors who want to own rental properties. There hasn’t been an opportunity remotely similar to this one since the New Market Tax Credit (NMTC) was crated back in 2000.
So, if you let this one pass you by, it could be another 20 years before you get another chance. Keep in mind, too, that the NMTC is limited by an annual allocation amount, which has been $3.5 billion per round of allocations in recent years.
Again, Opportunity Zones don’t have these kinds of limits. That’s why now is the time to take full advantage of this legislation.
If you’d like to transfer your gains directly into new rental properties, act now. Contact us today and we’ll walk you through the entire process.