Dealers, Don’t Get Short-Changed!
They say the first rule of real estate is location, location, location. This is certainly true if your dealership happens to fall within an “economic opportunity zone” — a new urban renewal program that is easily overlooked. According to the folks at Forbes, the Tax Cuts and Jobs Act of 2017 <https://www.congress.gov/bill/115th-congress/house-bill/1/text> has the U.S. government offering taxpayers incentives designed to encourage long-term investments in distressed communities.
The devil is in the details of the definition of what exactly is “a government partitioned low-income area.” These so-called “Opportunity Zones” are designated by the governor of each state and could literally be right in your backyard. Case in point is Dealernews’ own Bob Althoff discovering that one of his three Columbus, Ohio-area Harley-Davidson dealerships is indeed in an Opportunity Zone.
The plan for the Opportunity Zones is to pull millions of Americans out of poverty and generate both financial and social returns for investors, according to the Forbes analysis, citing the 2017 Distressed Community Index (DCI). DCI figures indicate 52.3 million Americans currently live in economically distressed communities, more than a quarter of them at poverty levels. Forbes claims this means that one in six Americans could have a chance at a better life that ultimately benefits future generations.
The first round of Opportunity Zones Designations in 18 states was announced in April of this year. Qualified Opportunity Zones retain this designation for 10 years. Investors can defer tax on any prior gains until no later than December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund, an investment vehicle organized to make investments in Qualified Opportunity Zones.
In addition, if the investor holds the investment in the Opportunity Fund for at least 10 years, the investor would be eligible for an increase in its basis equal to the fair market value of the investment on the date that it is sold.
“If an investor holds the O-Zone investment for five to seven or more years, they will benefit from an improved ‘stepped up basis’ — as much as 15% for investments held for seven+ years,” according to the Forbes analysis. “Should an investor hold their stake in said fund for 10-plus years, they would then benefit from not only the 15% step-up in basis but also from a permanent exclusion of all gains accrued after investing in the O-Fund.”
For more details and the 18 states that have Opportunity Zones in place, check with the Treasury Department: