UNDERSTANDING OPPORTUNITY ZONES & HUBZONES Wednesday, November 7, 2018, 1:00PM-2:30PM Williams County Community Offices, Conference Room A&B 1425 East High Street, Bryan OH 43506 Nate Green, Director of Economic Development Raymond Graves, Lender Relations Specialist David J. Robinson , Principal John Renner, Supervisory Business Opportunity Specialist
Census Tract 9506 Bryan, Ohio • HUBZone Program Eligible • Designated Opportunity Zone Tax abatement of up to 100 percent for 10 years on real property taxes. To be eligible, a company must be making new real property investment and formalizing an agreement with the local community prior to going forward with the qualifying project. • Municipal Income Tax Rebate Bryan Qualified companies, within the city limits, South may be eligible for a non-refundable income Industrial tax credit against their for-profit or individual Park income tax for creating new, full-time jobs. • Foreign Trade Zone 8 • Bryan Municipal Utilities Economic Development Rate* * case by case basis
Bryan South Industrial Park
Pre 1994 CRA Map – Bryan, Ohio
11/8/2018 Launching an Opportunity Zone Dave Robinson Nate Green The Montrose Development Advisors, LLC 5
Launching an Opportunity Zone Montrose Development Advisors, LLC 11/8/2018 Federal Opportunity Zone Basics IRS Regulations Launching an Opportunity Zone 6
Launching an Opportunity Zone Montrose Development Advisors Wrote the Book on Economic Development 11/8/2018 7
Launching an Opportunity Zone Legal Disclaimer 11/8/2018 • This document and information is provided by Montrose Development Advisors, LLC and the presenters for general guidance only, and does not constitute the provision of legal advice, accounting services, investment advice, written tax advice, or professional advice of any kind. • The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. • Before making any decision or taking any action, you should consult with a professional adviser who has been provided with all pertinent facts relevant to your particular situation. 8
Launching an Opportunity Zone Federal Opportunity Zones 11/8/2018 • Federal tax reform legislation • Up to 25% of a state’s low wealth census tracts and 5% of non-low wealth consensus tracts contiguous to low wealth districts 9
Launching an Opportunity Zone Benefits of Opportunity Zones 11/8/2018 • Temporary tax deferral for capital gains • Step-up in basis for capital gains reinvested • A step-up in basis reflects the changed value of an inherited asset. • Permanent exclusion from taxable income of capital gains from the sale or exchange of an investment 10
Launching an Opportunity Zone Opportunity Zone Key Terms Qualified Opportunity Opportunity Zone Capital Gains Opportunity Zone 11/8/2018 Fund Property • Long-term capital gains • 8700 census tracts are • New class of investment • Stock, partnership are gains made on assets designated as eligible to vehicles (corporation or interests or Opportunity held for over a year receive private partnership) specializes Zone Business eligible for investments through in aggregating private investment under the • Short-term capital gains Opportunity Funds investment and Opportunity Zones are assets held for a year deploying that capital in Program or less Opportunity Zones to • Substantially all the • Long-term gains are support Opportunity tangible property used in taxed at rates of 0%, Zone Property trade or business 15%, or 20%, depending • Certified by US Treasury on your tax bracket • Acquired after December • 90 % of Opportunity 31, 2017 • Short-term gains are Fund invested in taxed as ordinary • Original use substantially Opportunity Zone income. improves the property in Property the OZ • Market solution for • At least 50% of its gross investors & low income income is derived from rural/urban regions the active conduct of • No limit on fund numbers business in the OZ or investment focus or • Substantial portion of the profile intangible property held • Pooling capital broadens be used in the active investor opportunity conduct of its business 11
Launching an Opportunity Zone Step-up in basis for Capital Gain Deferral Permanent exclusion capital gains 11/8/2018 • Reinvestment into an • Reinvested in an • Investment in qualified Opportunity Fund Opportunity Fund- opportunity zone • Deferred gain is • Basis of the original • Held for at least 10 recognized on the investment is increased years earlier of the date on by 10% which the opportunity • investment in a zone investment is sold qualified opportunity or December 31, 2026 zone fund • held by the taxpayer for at least 5 years • by an additional 5% if held for at least 7 years, excluding up to 15% of the original gain from taxation 12
Launching an Opportunity Zone 11/8/2018 13
Launching an Opportunity Zone IRS Regulations • Investors 11/8/2018 • OZs are for capital gains only •Deferred gain retains the same attributes in the year it’s recognized as it had in the year it would be reported if tax wasn’t deferred • Those who are eligible for the OZ include individuals, corporations (including RICs and REITs), partnerships, common trust funds (under Section 584), qualified settlement funds, disputed ownership funds and other entities taxable under IRC Section 1.468B • Allows gains recognized by a partnership by either the partnership or its partners •When a partnership doesn’t defer gain, a partner may elect its own deferral with respect to their distributive share •A partner’s 180 - day period begins on the last day of the partnership’s taxable year, or (if the partner chooses) on the same day as the start of the partnership’s 180-day period • Allows all the benefits of the program to be claimed by taxpayers through Dec. 31, 2047 which maybe after OZ expires 14
IRS Regulations 11/8/2018 • Qualified Opportunity Funds • Corporation or partnership for federal income tax purposes. • Can choose their first month in a taxable year for when they officially begin •The valuation method for the 90 percent asset test uses asset values on the QOF’s applicable financial statement for the taxable year, or the cost of the assets if the QOF has no applicable financial statement • Requires an OZ Business have only 70% of its assets invested in OZ business property •“Substantially all” threshold of an OZ Property’s OZ business property is 70 percent • Working capital safe harbor for OZ businesses is 31 months • At least 50 percent of the gross income of a qualified OZ business must be derived from business conduct in the OZ • A substantial portion of the intangible property of an OZ business must be used in the active conduct of a trade or business in the OZ • Calculate the substantial improvement test by reference to the basis of the building excluding the basis in the land 15
Launching an Opportunity Zone IRS Open Questions 11/8/2018 • Federal tax treatment of gains recognized by a QOF, that a QOF reinvests • What constitutes a “reasonable period” for a QOF to reinvest proceeds from a sale of qualifying assets • The reasonable period for a QOF to invest cash received by a QOF from an investor • The definition of “substantially all” in uses other than the OZ business description above • How to determine the use in an OZ of an OZ business’s inventory, delivery trucks and other items • What conduct could lead to decertification of a QOF 16
Launching an Opportunity Zone Opportunity Zone Example 11/8/2018 Rich Moneybags Apollo Opportunity Rex Tile, Inc. Rich Moneybags Apollo Opportunity Fund aka Taxpayer Opportunity Zone Fund Site Certified by Organized as a Person recognizes Immediately Designates Retains US Treasury as an corporation or gains from invests in investment for investment for 10 Opportunity Zone partnership for an individuals, C or S Opportunity Zone land acquisition, years eligible corporations, Business/Property construction of a Site Development Permanent Opportunity Zone mutual funds, real Rex Tile, Inc. building & Plan exclusion of estate expenses Certified by US capital gains Site Prospectus investments, necessary for the Treasury as a partnerships, project Qualified trusts & estates Opportunity Fund 50% of gross from an unrelated income from OZ Invests 90% of its Person investments in Realizes $1 M Opportunity Fund capital gain and Property/Business immediately invests capital gain in Apollo Opportunity Fund 17
Launching an Opportunity Zone 11/8/2018 18
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Launching an Opportunity Zone Williams County Defiance County Ohio OZ Henry County OZ OZ 11/8/2018 • Bryan, Ohio • Napoleon, Ohio • Defiance, Ohio • Industrial Park • Route 24 • Commerce Redevelopment Industrial Park Industrial Area Development • Enterprise Industrial Area • Downtown Redevelopment • Technology Park Development 21
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