Benefits of Investing in Designated Opportunity Zones
One of the good things about real estate (and there are many) is that the government generally creates incentives for investors and developers to provide housing in certain areas.
This is the case with the fairly new “opportunity zones” initiative that launched in December of 2017 with the tax cuts and jobs act legislation. Let’s discuss what the benefits are of investing in one of these areas.
Investing in Designated Opportunity Zones
By investing in opportunity zones you can save a bunch on capital gains taxes. Similar to a 1031, but with more flexibility, you only need to designate the gains from a property into the opportunity fund.
That money obviously needs to be used to invest in one of the many opportunity zones designated by the government entities. You can see a map of opportunity zones here.
Tax Benefits of Opportunity Zone Investing
A basis step-up for capital gains reinvested in an opportunity fund
A temporary deferral of taxable income for capital gains reinvested into an opportunity fund.
A permanent exclusion of capital gains if the investment is held for at least 10 years.
For us buy hold folks that last one is very enticing as normally you will hold a rental for atleast 10 years. Capital gains being excluded permanently sounds nice to me! It’s likely a 15% savings staying in my pocket!
Tax benefits are just one of the reasons rental properties are so awesome.
Some of these designated opportunity zones
have felt like tar pits.
Yes, the tax benefits are great, but, like, all the money in the world has not helped the Bronx.
What are your rules of thumb in seeing if an area is just going to keep deteriorating? I know many people who do section 8 housing, just operating off of what they get from the govern-cement, and hope they get something from the tenant. Knowing that if/when they have to get it ready to rent again, it will take a shovel to get to the carpet, and drywall will need replacing.
Yeah most are doing section 8 in these areas as like you said, guaranteed check from gov't. Also, atleast here in FL if a section 8 tenant violates any of section 8 rules and regs they lose benefits for life. They can't re-apply, so cus of this section 8 tenants are behaving better than regular tenants on a whole.
Hi @scaredycatguide
As for investment according to what you mention definitively is very profitable. However, taking into account what @builderofcastles says, it is valid to know where these areas of opportunity will be, since it will be useless to invest in an area that in the long run cannot be populated by any factor that prevents it. Then our investment will also be lost.
but I repeat all the characteristics of the investment sound very good and favorable over time.
Yes, exactly. There are opportunity zones I would not touch and others that actually surprised me got tagged as they are already pretty decent spots. Atleast here in FL it worked like that.
Hello my dear @scaredycatguide, it is good to be able to read that initiatives such as these are being developed that promote inevitability and also favor people who do not have a home. I am from Venezuela and I would like to know what country you live in and where these programs are implemented.
It is a real pleasure to read what you write, thanks for sharing.
Thank you for this interesting post, injecting construction funds helps communities a lot.
However, it is important that these zones are in accordance with the environmental institutes in order to be able to agree with all the areas. Because many times areas are habilitated that possibly are areas of environmental conservation. To achieve a balance with nature as well.
Thanks for sharing :)