Coastal Bend Fund

Opportunity Zone Fund


Societal Benefits

Four years into the program, federal and local authorities are formalizing their reporting about ways in which the program is impacting OZ communities, including local residents. Increases in job growth, home values, and overall economic growth in OZ tracts are being measured. Here is an example of what we’re finding:

What’s Next?

The Biden administration will undoubtedly expand annual reporting of OZ fund activities and community impact. Depending on whether the Build Back Better (BBB) bill rises from the ashes or gets restructured, we may see the OZ program combined with certain infrastructure projects to maximize leverage and encourage public-private partnerships.

While many use the OZ program in connection with real estate, firms engaged in venture capital and private equity — initially reluctant to jump into the OZ investment pool due to its 10-year time horizon — have begun taking advantage of the OZ program’s benefits to fund operating businesses in designated OZ tracts. These operating businesses — not all tech startups seeking “cheap rent” by the way — have the potential to expand job creation when combined with other tax program advantages in these areas. Meanwhile, private-equity investors are segmenting certain longer-term real estate investments into OZ structures.


Investment and tax benefits

While many believe the window of “opportunity” to invest in the OZ program closed on Dec. 31, 2021, clients who are sitting on large capital gains generated in calendar 2021 may still be eligible for OZ reinvestment. To the extent their gains are reportable on a Schedule K-1, taxpayers have as late as Sept. 10, 2022, to reinvest. However, if the taxpayer directly held the sold assets, such as stock holdings, a plot of land, or cryptocurrency, he or she has a much stricter 179-day reinvestment period after the date of sale.

The OZ program still has two important benefits remaining from a tax perspective:

2022 OZ Investment Horizon

With the prospect of higher federal and state taxes looming on the horizon on top of inflationary pressures on the U.S. economy, there is no better time for clients to consider investing in an opportunity zone. The program will be even more appealing if certain potential tax law changes included in the recently defeated BBB bill ultimately resurface. Those changes include reducing the Sec. 1202 small business stock exemption to 50% from its current 100% level, as well as limiting Sec. 1031 transactions, raising marginal tax rates, and reducing many other deductions.

With tax rates likely to rise in the near term and with inflation boosting the dollar value of capital gains, the OZ exemption becomes even more attractive as a way to mitigate a client’s tax exposure from appreciated stocks, bonds, real estate, crypto, and NFT (nonfungible token) investing. As a result, we anticipate billions of dollars of additional gains finding their way into the OZ program in calendar 2022. Remember, under current tax rules, qualified gains can be invested into the OZ program through September 2027.

A Great Tax Incentive Program

The federal OZ program remains one of the greatest bipartisan tax incentive programs to pass Congress in decades. You and your clients do not want to ignore this powerful and flexible program while it is still in place. Understanding how the program works and which fact patterns you should watch for will add tremendous value to your client relationships as you help clients optimize their investment, tax, and social impact opportunities.

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