There’s a new kid in the property investment neighborhood: Opportunity Zones!
What is an Opportunity Zone? Opportunity Zones are census tracts that are defined by the IRS as “…an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.”
Opportunity Zones were added to the Tax Cuts and Jobs Act on December 22, 2017. The U. S. Secretary of the Treasury nominated Specific Opportunity Zones in 2018. So much for just the technical definition of this new program!
Just like any newcomer on any venue menu, it’s sometimes a real challenge to get acquainted, learn the details and get comfortable with concept and process. Then, get excited about participation! Sorting through the nitty-gritty of the Opportunity Zones program — though deep – is both interesting and exciting when we consider that right here in our beautiful Lake County there is a designated Opportunity Zone — just waiting for wise and visionary investors.
We all know that it takes an innovative and creative posture when considering an “economically distressed” property region, as a good investment. One has to factor in the potential! Basically beautiful and promising locations in need of serious TLC can produce significant rewards. But without strong incentives, those rewards might never evolve.
It may be time for you (an investor looking for a good mark) to visit the designated Opportunity Zone in our Lake County town of Clearlake – with an eye for the possibilities, enhanced by serious tax benefits. The truth is that most “economically distressed” regions are often viewed only from the standpoint of perceived neglect, destructive disintegration and other failings of the occupants. Without factoring in the limitations of resources for remedies from Municipal, County, State or Federal entities, that judgment is obviously flawed.
When “opportunity” knocks, sometimes we just don’t hear it! No County or community is completely free of distressed areas; and not all of those distressed areas qualify for available remedies. It’s important for such areas to be brought into the bright light of actual remedial considerations. If a community under such consideration actually has been designated an Opportunity Zone, serious investors ought to step up!
In researching the functional dynamics of the Opportunity Zones program and its tax benefits, one of the many rules of the game stood out to me as a real plus: “Investors are required to substantially improve their investment in order to receive benefits offered for investing in an Opportunity Zone. The IRS will conduct tests to ensure the investments are maintaining at least 90% of their assets in the qualified Opportunity Zone(s).”
Hope is a powerful phenomenon – and when it invades a problem with possibilities, other possibilities follow.
Most communities, the sizes of our towns in Lake County, face redevelopment challenges as infrastructures and both commercial and residential buildings age and deteriorate.
Many of the promises and conditions made at earlier construction and developmental stages eventually run out their clocks. As a region becomes neglected and falls into varying degrees of ruin, simple maintenance can no longer suffice. We are all familiar with the characteristics of such conditions. Ordinarily, the struggling occupants of such areas can no longer keep up with the needs, nor implement the fixes.
State governors nominated possible Opportunity Zones that then had to be certified by the Secretary of the U. S. Treasury. The nominated tract had to meet at least one of the several criteria. Our Clearlake qualified.
What about properties adjacent to Opportunity Zones? A good question — without a federal policy as yet! However, it’s reported that communities throughout the United States are exploring ways to best use their properties, with the adjacent Opportunity Zones as an advantage.
Then there is that huge factor of frustration over both the situation of a distressed community in our county, and the challenge of sorting through workable and un-workable solutions. The Opportunity Zones program is a workable solution, and when the Opportunity Zones program designation has joined a community’s portfolio of possible solutions, things can change!
For more insights and details concerning Opportunity Zones, https://opzones.ca.gov/faqs/ has it all!
Jim Magliulo is the leader in Lake County Commercial Real Estate sales and marketing and can be contacted at 707-263-5729 or jim@countryair.com. You can also view all his listing on his web site at www.countryaircommercial.com.
