The Garfield Opportunity Zone

What is it?

The Garfield Opportunity Zone is a United States Census Tract generally composed of economically distressed neighborhoods that qualify for the Opportunity Zone program, according to criteria outlined in the United States Tax Cuts and Jobs Act of 2017. The Opportunity Zone program was created to revitalize these neighborhoods using private investments rather than taxpayer dollars. To stimulate private participation in the Opportunity Zone program, taxpayers who invest in the Opportunity Zone are eligible to benefit from capital gains tax incentives available exclusively through the program.

To access these tax benefits, investors must invest in the Opportunity Zone specifically through Opportunity Funds. A qualified Opportunity Fund is a US partnership or corporation that intends to invest at least 90% of its holdings in one or more qualified Opportunity Zones.

In exchange for following the rules of the Opportunity Zone program and investing in the Opportunity Zone through Opportunity Funds, investors can receive substantial capital gain tax incentives immediately and over the long term.

How does it work?

When an investor divests an appreciated asset, such as stocks or real estate, they realize a capital gain, which is a taxable event. Under the Opportunity Zone Program, if an investor reinvests a capital gain into an Opportunity Fund, they can defer and reduce their tax liability on that gain. Beyond that, they can also potentially receive tax-free treatment for all future appreciation earned through the fund. Together, these tax incentives can boost after-tax returns for Opportunity Fund investors:

• Those who invest realized capital gains into a Qualified Opportunity Fund can defer paying capital gains tax for those earnings until April 2027 for investments held through December 31, 2026. Gains must be invested in a Qualified Opportunity Fund within 180 days in order to qualify for any tax treatment available under the Opportunity Fund program.
• Those who hold their Opportunity Fund investments for at least five years prior to December 31, 2026, can reduce their liability on the deferred capital gain principal invested in the Opportunity Fund by 10%. If the investment is held for a minimum of seven years prior to December 31, 2026, the tax liability can be reduced by 15% total.
• Those who hold their Opportunity Fund investment for at least 10 years can expect to pay no capital gains taxes on any appreciation in their Opportunity Fund investment. That’s because Opportunity Fund gains earned from Opportunity Zone investments can qualify for permanent exclusion from the capital gains tax if the investment if held for at least 10 years.

What types of investments are allowed?

Real estate investments using Opportunity Funds must lead to “substantial improvements” within 30 months after the acquisition. Investments in businesses such as liquor stores, massage parlors, country clubs, or casinos are prohibited through Opportunity Funds.

Why should investors be interested?

As part of the Traverse City urbanizing area, investors looking to this area will find projects that are low risk and provide substantial community benefit. Although the Opportunity Zone may be classified as an economically distressed area, Garfield is a market that has experienced continuous lucrative investment with future growth potential.

For more information, visit the MSHDA Opportunity Zone webpage: https://www.michigan.gov/mshda/0,4641,7-141-5587_85624---,00.html