New Jersey launched 169 federal Opportunity Zones in 75 municipalities with great fanfare. The new federal program is designed to boost private-sector investments in economically challenged areas throughout the state.
But how, exactly, does it do that? And how can New Jersey businesses benefit from it?
Barbara Weltman at the Small Business Enterprise Council lays it out in plain English here.
Gov. Phil Murphy and U.S. Sen. Cory Booker (D-NJ) praised the Opportunity Zone program last month, predicting it would attract billions of dollars in capital.
“It’s the only part of the tax bill that we like,” Murphy said, referring to the Tax Cuts and Jobs Act of 2017. “We are head-over-heels in love with this.”
In New Jersey, the program will be run out of the Department of Community Affairs, which has additional information on its website.
According to Weltman, the program is not fully operational yet, she writes. Once the IRS certifies qualified opportunity funds, investors will be able to make the investments in companies that appeal to them.
For businesses, benefits include:
- More capital investment: Businesses can issue stock to the fund and receive cash in exchange (see benefits for investors below).
- Deferred capital gains tax on business sale.
For investors, benefits include:
- Deferred capital gains tax: An individual or business defer gain from the sale or exchange of any property to an unrelated party if the gain is reinvested a zone within 180 days.
- Increased basis: If the investment is held at least five years, then basis is increased by 10 percent of the original gain that was deferred.
- If the investment in the fund is held at least 10 years, the taxpayer can elect to treat the fair market value of the investment on the date of sale as the taxpayer’s basis in the investment.
- If the value of the shares in the fund has declined on the date of sale then gain that must be recognized from the original deferral is determined by the share’s fair market value on the applicable date.