3 Things You Don't Know About Houston's Opportunity Zones - CXRE Group

Houston’s Opportunity Zones

In general, the goal of Opportunity Zones is to stimulate economic growth. In the end, these investments could help transform many areas of Houston. Furthermore, these areas will keep their O-Zone designation for 10 years. Not only that, but investing in Houston’s Opportunity Zones (or O-Zones) offers tax benefits to investors. Below are three things you may not have known about Houston’s Opportunity Zones.

1. These are 150 Houston Opportunity Zones

Throughout Houston, there are 150 Opportunity Zones. Texas Governor Greg Abbott said in a press release that he hopes these Houston Opportunity Zones will boost local communities. Specifically, he highlighted areas that were impacted by Hurricane Harvey. In brief, he hopes billions of investment dollars will flow into Houston and other parts of Texas.

Some specific Houston Opportunity Zones that could benefit from investment are New Caney, Downtown Houston, and East Downtown Houston. A number of industry stand to benefit from these designations including real estate development, manufacturing, restaurants, and service business, among others.

2. There is a Houston Opportunity Zones Map

Originating in the 2017 Tax Cuts and Jobs Act, Opportunity Zones are designed to spur investment in economically-distressed communities. As a result, parts of Houston that were hit the hardest by hurricane Harvey could benefit from financial investment.

Texas Governor Greg Abbott submitted the state’s 628 Opportunity Zone designations to the Treasury Department in March 2018. As stated above, 150 of these Opportunity Zones are in Houston.

CXRE Research Team posted the following Opportunity Zone Map. (Rice previously published this map: Houston Opportunity Zones Map). The blue areas indicate designated Opportunity Zones. For example, there are many blue highlighted areas in Downtown Houston and East Downtown Houston in this map. As a result, these indicate the area where investors could park their capital.

3. There Are Tax Benefits for Investing in Houston Opportunity Zones

Opportunity Funds (O-Funds) are the primary vehicle for investing in Opportunity Zones. In particular, new investments in these areas could qualify for tax benefits under certain conditions. Qualified O-Funds offer the following tax benefits to investors:

  • Deferred Capital Gains Tax — Sell current assets and invest the taxable capital gains in Opportunity Funds. Do this within 180 days of selling the assets to avoid paying capital gains tax (until the fund is divested or until December 31, 2026).
  • Basis Step—Ups – Increase rolled-over capital gains:
    • 5-year O-Funds holding produces a 10% basis step-up
    • 7-year O-Funds holding produces 5% more (15% total)
  • Tax Exempt Potential — Hold Opportunity Funds for 10 years – they grow tax-free and are exempt from capital gains
  • Fewer Limits — O-Fund investments have fewer limits than other investments. There are no limits on:
    • The amount invested
    • How much tax you avoid
    • The type of taxes you avoid
    • The amount of time that gains compound tax-free

Giving Houston a Boost with Opportunity Zones

As Houston continues its post-Harvey recovery, many people hope that Houston’s Opportunity Zones will boost many local communities. For example, Governor Abbott says there is the potential for billions of investment dollars to flow into Houston. 

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