[PPT] - OPPORTUNITY ZONES & HUBZONES Wednesday, November 7, 2018, PowerPoint Presentation

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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 Raymond Graves, Lender Relations Specialist John Renner, Supervisory Business Opportunity Specialist Nate Green, Director of Economic Development David J. Robinson, Principal

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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

Qualified companies, within the city limits, may be eligible for a non-refundable income tax credit against their for-profit or individual 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

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Bryan South Industrial Park

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Pre 1994 CRA Map –Bryan, Ohio

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Launching an Opportunity Zone

Dave Robinson Nate Green The Montrose Development Advisors, LLC

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Montrose Development Advisors, LLC Federal Opportunity Zone Basics IRS Regulations Launching an Opportunity Zone

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Montrose Development Advisors Wrote the Book on Economic Development

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Launching an Opportunity Zone

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. Legal Disclaimer

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Launching an Opportunity Zone

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Federal Opportunity Zones

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

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Benefits of Opportunity Zones

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

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Launching an Opportunity Zone

Capital Gains

Long-term capital gains

are gains made on assets held for over a year

Short-term capital gains

are assets held for a year

r less
Long-term gains are

taxed at rates of 0%, 15%, or 20%, depending

n your tax bracket
Short-term gains are

taxed as ordinary income. Opportunity Zone

8700 census tracts are

designated as eligible to receive private investments through Opportunity Funds Qualified Opportunity Fund

New class of investment

vehicles (corporation or partnership) specializes in aggregating private investment and deploying that capital in Opportunity Zones to support Opportunity Zone Property

Certified by US Treasury
90 % of Opportunity

Fund invested in Opportunity Zone Property

Market solution for

investors & low income rural/urban regions

No limit on fund numbers
r investment focus or

profile

Pooling capital broadens

investor opportunity Opportunity Zone Property

Stock, partnership

interests or Opportunity Zone Business eligible for investment under the Opportunity Zones Program

Substantially all the

tangible property used in trade or business

Acquired after December

31, 2017

Original use substantially

improves the property in the OZ

At least 50% of its gross

income is derived from the active conduct of business in the OZ

Substantial portion of the

intangible property held be used in the active conduct of its business

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Opportunity Zone Key Terms

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Capital Gain Deferral

Reinvestment into an

Opportunity Fund

Deferred gain is

recognized on the earlier of the date on which the opportunity zone investment is sold

r December 31, 2026

Step-up in basis for capital gains

Reinvested in an

Opportunity Fund-

Basis of the original

investment is increased by 10%

investment in a

qualified opportunity 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 Permanent exclusion

Investment in qualified
pportunity zone
Held for at least 10

years

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Investors
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 IRS Regulations

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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 IRS Regulations

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IRS Open Questions

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

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Retains investment for 10 years Permanent exclusion of capital gains

Rich Moneybags

Designates investment for land acquisition, construction of a building & expenses necessary for the project 50% of gross income from OZ

Rex Tile, Inc.

Immediately invests in Opportunity Zone Business/Property Rex Tile, Inc.

Apollo Opportunity Fund

Person recognizes gains from individuals, C or S corporations, mutual funds, real estate investments, partnerships, trusts & estates from an unrelated Person Realizes $1 M capital gain and immediately invests capital gain in Apollo Opportunity Fund

Rich Moneybags aka Taxpayer

Organized as a corporation or partnership for an eligible Opportunity Zone Certified by US Treasury as a Qualified Opportunity Fund Invests 90% of its investments in Opportunity Fund Property/Business

Apollo Opportunity Fund

Site Certified by US Treasury as an Opportunity Zone Site Development Plan Site Prospectus

Opportunity Zone 11/8/2018

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Opportunity Zone Example

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Williams County Ohio OZ

Bryan, Ohio
Industrial Park

Redevelopment Henry County OZ

Napoleon, Ohio
Route 24

Industrial Park Development Defiance County OZ

Defiance, Ohio
Commerce

Industrial Area

Enterprise

Industrial Area

Downtown

Redevelopment

Technology

Park Development

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Lucas County OZs

Overland Industrial Park
ProMedica Colony Project
Mercy Health Cherry Street Corridor Project
Uptown District Project
Renaissance Senior Housing
ProMedica HQ Project
Hensville District
Ironville Intermodel
East Toledo/Marina District Project
Toledo Zoo District

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Prepare a Job Ready Site Opportunity Zone Local and State Policy Advocacy Market an Opportunity Zone Site Build or Recruit an Opportunity Zone Fund Launching an Opportunity Zone

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Determine Highest and Best Use of a Site Industry Cluster Analysis Real Estate Market Analysis Developer Recruitment Infrastructure Plan Engineering and construction site analysis Transportation Plan Engineering and construction site analysis Land Use Entitlements Enacting zoning, easement and transportation policies Infrastructure Finance Public Finance, local, state, federal and developer financing 11/8/2018

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Prepare a Job Ready Site

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Highest and Best Use

Industry Cluster Analysis
Location Quotient
Tied to Federal Occupation Data
Automation Index
Future of Work
Real Estate Market
Competitive Rent or Building Analysis

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Opportunity Zone Infrastructure Strategy

EDA Public Infrastructure Grants

New Market Tax Credits

Downtown Redevelopment Districts

Historic Preservation Tax Credits

JobsOhio/ MEDC/IEDC Incentives Tax Increment Financing

Tax Abatements 11/8/2018

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State Opportunity Zone Infrastructure Program State Opportunity Zone Tax Policy Local & State Opportunity Zone Policy Agenda Local Opportunity Zone Tax Abatement

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Opportunity Zone Public Policy

Ohio House Bill 727
Creates a tax credit for investments

in Qualified Opportunity Zones

Taxpayers investing at least $250,000

during a taxable year in an Ohio Qualified Opportunity Fund will earn a nonrefundable tax credit equal to 10% of the investment

Tax credit would be claimed against

the aggregate tax liability of the taxpayer for the taxable year in which the investment is made

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Illinois

Illinois Department
f Commerce and

Economic Opportunity convening forums to educate communities about Opportunity Zones and introduce them to potential investors and Opportunity Fund managers

Potential creation of

a state-operated Opportunity Fund with other branches

f the Illinois state

government Kentucky

Kentucky Cabinet for

Economic Development dedicated a portion

f its website to act

as a clearinghouse for all information related to Opportunity Zones in Kentucky including a map of available industrial sites and buildings located in Opportunity Zones

Planning a regional

tour to provide communities with information and resources to capitalize on their Opportunity Zones Missouri

Missouri Department
f Economic

Development created a section on its website describing the program and hosted an informational webinar for interested stakeholder

S.B. 773, signed into

law in this summer, reserves $30 million

f the state’s annual

historic preservation tax credits allocation for eligible projects in Opportunity Zones North Carolina

State legislation

introduced, H.R. 6890, would allow for the designation of new opportunity zones every 10 years, allowing the policy’s benefits to build and compound rather than expire

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State Policy Efforts for Opportunity Zones

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Market an Opportunity Zone Site

Focus on Impact Investors Focus on an Industry Secure a Developer

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Build or Recruit an Opportunity Zone Fund

Promote Local and State OZ Friendly Public Policies
Form State OZ Coalition
Prepare OZ Sites for Development
Site Development Plans
Land Use Entitlements
Fund & Build Infrastructure
Create Prospectus
Create Opportunity Zone Funds
Prepare to incorporate
Recruit investors
Identify investments
Connect Investors and Sites

Call to Action

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Conclusions Thoughts Questions Contact

drobinson@montrosegroupllc.com
ngreen@montrosegroupllc.com

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