Yes, this is the infamous tidbit for investors from the Tax Cuts and Jobs Act of 2017. An Opportunity Fund is a new investment vehicle created to incentivize investment in targeted communities called Opportunity Zones. The program will appeal to investors looking to defer big capital gains, and developers seeking an alternative to the current rates in mezzanine style debt.
Opportunity zones are specific tracts of land designated by state and federal government to be targeted for economic development. These special tax break programs were put in place for commercial real estate and ag investors. Want to know the real magic? Capital gains on qualified opportunity zones are deferred on investments that are held for at least 10 years.
Opportunity Funds make it possible for investors to defer federal taxes on any recent capital gains until December 31st, 2026. Then take and reduce that tax payment by up to 15% and pay zero taxes on potential profits from an Opportunity Fund if the investment is held for 10 years.
March 2019 will bring needed insight into how agri-business and opportunity zones will co-exist and function. Many of the opportunity zones are in rural and agricultural areas, but the details on how an agricultural opportunity zone will function are still undetermined.
The IRS has been as responsive as possible given the time factor imposed by the current administration’s government shutdown. The next round of regulations for this program are set to come out in March 2019. Any way you carve it up, this is one giant opportunity for investors to defer capital gains into new tax protected investments, instead of surrendering more dollars to the IRS.
Purchasing farmland doesn’t seem to be a viable opportunity at present, as rules state that 100% of the purchase price must be invested back in to the land within 30 months to qualify. That leaves us with only agriculture businesses that can be invested in with an opportunity fund. This increases risk and success will be very deal specific. We will learn much more information in due time as to how opportunity zone funds can directly benefit the ag community.