What's an Opportunity Zone?
As part of The Tax Cuts and Job Creation Act of 2017, the U.S. federal government granted states the right to designate a number of "distressed" census tracts as eligible for significantly tax advantaged investing. The intention of the bill is to revitalize these areas by encouraging investment that might otherwise not happen, and most experts believe it will redirect as much as two trillion dollars into these regions. Here's how it basically works...
1. Invest Gains
An investor sells an asset and generates a capital gain. This bill allows investors to realize those gains and roll forward any portion of the gains into an opportunity zone fund without paying taxes until 2026. It's important to note that only gains receive the tax advantage, and unlike a 1031 exchange the basis of the original investment can be separated out.
2. Defer + Reduce Taxes
Taxes due on the gains that are rolled forward are deferred until 2026. That means you are investing more. Taxes aren't just deferred, though. If the gains are left in the OZ fund for 5 years, there's a 10% forgiveness. At year 7, there's an additional 5% forgiveness. That's a total of 15% reduction in taxes for investors that transition money quickly enough to reach the 7 year mark before the end of 2026.
3. Eliminate Taxes
The primary benefit is realized if gains are left in the OZ fund for a period of 10 years. At the 10 year mark, taxes are forgiven on all new gains made within the OZ. Investors still have to face their 2026 tax bill, but gains made within the OZ fund are tax free, which obviously delivers an amazing boost to returns.
Why, and Why rural Colorado
Since the great recession, the long term economic recovery has been concentrated in a handlful of regions. While a handlful of zip codes reaped the vast majority of new wealth, many less fortunate communities remained flat or worse. Rural economies were particularly likely to miss out the recovery as the gap between the rich and the poor widened. Rural Colorado overall faired slightly better than some, but more importantly, has some momentum to indicate it can play a significant part in future economic growth.
The combination of incredible natural beauty, outdoor adventure and forward looking community leaders have continued to attract opportunities and assets. Colorado is home to a number of economic development thought leaders who have spent years working on forms of alternative capital and deal structures that work in rural economies. Colorado is taking a "hub and spoke" approach to developing its rural communities, leveraging the immense resources in it's resort towns and rural hubs. Colorado's rural communities also have the benefit of drawing from the Denver-Boulder area, which has seen an incredible boom in startups and associated investing. With a growing population, concentrated regional support resources and a blueprint years in the making, rural Colorado is home to pent up deal flow in communities on the verge of significant growth.
Here is our plan
Work is already underway. We have officially launched a pilot fund and are ready to begin making select investments. We are also raising a larger fund to be deployed as soon as the IRS releases its final guidance on this new tax code.
The Rural Colorado Opportunity Zone fund, Rural COZ, will partner with local and national Zone Funds, operating as 'Boots on the Ground' and serving as a pipeline for national investors interested in Colorado.
Our plan is to deliver better than market returns and high social impact via a fund that will invest in a mix of real estate and businesses in a handful of rural Colorado communities. The mix allows the fund to address the broad range of problems these communities face with regards to missing infrastructure, workforce housing and job creation. By bringing all these parts up in a thoughtful ratio, the fund can not only ensure lasting impact but also ensure individual investments have all the associated support required to succeed. We are working with a long list of partners and identified deals in select communities where we will place our primary fund investments.
Here is our team
The same great people that brought Four Points Funding to the western slope. Four Points Funding has placed over $40M dollars in rural Colorado real estate in the last 5 years, a quarter of that in areas now designated as opportunity zones. In addition, we have worked aggressively over the last year plus to become an established player in the western slope startup ecosystem. Our ties to rural Colorado investment opportunities is unmatched and opportunity zones are the perfect vehicle to accelerate what we are already successfully doing.
Where to Learn More
The maps are set for the next 10 years. You can view the Colorado OZ map and find out numerous details about the OZ origins and implementation at https://choosecolorado.com/opportunity-zones/ . A few notes on that page:
- When viewing the map, be sure to zoom and scroll, or enter a specific address in the search field. There are numerous communities that you might not notice are in the zone without zooming in and being on one side of the street versus the other can make the difference. Only areas highlighted in yellow are elgible for opportunity zone investments.
- Economic development entities are encouraged to study the sample regional prospectus under "RESOURCES FROM COLORADO OPPORTUNITY ZONE CONFERENCE". Quickly developing a comprehensive community plan that can be expressed in standard terms will help expedite investment.
- The bottom of the page has a "LINKS & RESOURCES" section with links to key sites including the full tax code, associated FAQs and detailed descriptions from the Economic Innovation Group.