In March 2018 Texas Governor Greg Abbott submitted the state’s 628 designations to the Treasury Department. These include 150 Opportunity Zones in Houston. Added to the 2017 Tax Cuts and Jobs Act, Opportunity Zones could spur investment during Houston’s continued post-Harvey rehabilitation.
An Opportunity Zone is “an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Therefore the goal is stimulating economic development. But they can potentially transform Houston and other Texas cities.
In a press release, Governor Greg Abbott said, “As we continue to recover after Harvey, these Opportunity Zone designations will also provide a much-needed boost for local communities impacted by the storm.” Consequently, Gov. Abbot hopes billions of investment dollars will flow into Houston and other Texas ‘O-Zones.’
Opportunity Zones Tax Benefits
Investing in Opportunity Zones happens through qualified Opportunity Funds (O-Funds), the designated O-Zone investment vehicles. The main Opportunity Zones Tax Benefits are:
- Deferred Capital Gains Tax – You can sell current assets to invest taxable capital gains into O-Funds. Do this within 180 days of selling your assets and you avoid paying capital gains tax (at least until an O-Fund is divested or until December 31, 2026).
- Basis Step-Ups – Basis step-ups increase your rolled-over capital gains:
- A five-year O-Funds holding brings a 10% basis step-up.
- A seven-year O-Funds holding brings an additional 5% (15% total).
- Tax Exempt Potential – Holding O-Funds investment for at least 10 years lets them grow tax-free AND you are exempt from paying capital gains.
- Fewer Limits – Finally, there are fewer limits on O-Fund investments. There are no limits on the amount invested, the type of taxes you avoid, how much tax you avoid, and the amount of time that gains can compound tax-free.
Spurring Investment and Connecting with Communities
Opportunity Zones have the potential to spur investment and development in Houston. Furthermore, investing in Opportunity Funds connects investors to communities with real needs. In addition to the benefits to the people of Houston, Opportunity Zone investments offer tax benefits to investors. For additional information on investment opportunities in Houston and in Texas, contact CXRE Group today.