Business Law Series, Vol. 3: Opportunity Zones
As a part of President Trump’s signature Tax Cuts and Jobs Act of 2017, Congress authorized the Opportunity Zones program which was designed to encourage investment and re-development in specially designated economically-distressed areas; it promotes this by partially shielding capital gains invested into businesses or properties within opportunity zones from federal taxation.
As a Democratic administration and congress considers raising capital gains tax, the tax exclusions offered by Opportunity Zone Funds (QOZFs) may become even more attractive to investors in the coming years.
While there are no tax breaks for the actual businesses operating within opportunity zones, the attracted investment capital presents an incentive for businesses to consider relocating or forming in one of these zones and becoming a Qualified Opportunity Zone Business (QOZB). Investment from QOZFs can mean more capital to fund your startup operations and kickstart your business.
To qualify as a QOZB that Qualified Opportunity Zone Funds can invest in, you must meet some basic criteria:
70% of the tangible property owned by your entity must be property within the QOZ
40% of your intangible property bust be used to conduct your business within the Opportunity Zone
50% of your gross total income must be from business within QOZ
Less than 5% of the average of the total unadjusted basis of the property of your business may be from non-qualified financial property
Your business cannot be a “sin-business” like a massage parlor, liquor store or golf-course
By meeting these criteria, you can become a Qualified Opportunity Zone Business and attract the investment of Qualified Opportunity Zone Funds.
Maryland has 149 designated Opportunity Zones businesses can locate in, and dozens of Qualified Opportunity Zone Funds investing in the properties and businesses within them. Once you’re qualified, you can list your business or project on the Maryland Department of Housing and Community Development’s Information Exchange.
Many Qualified Opportunity Zone Businesses have already raised hundreds of thousands and even million dollars in funding. The tech startup Galen Robotics for instance relocated to Pigtown in West Baltimore and secured the investment of the Verte Opportunity Fund.
As you can see, in addition to revitalizing the DMV's distressed neighborhoods, Opportunity Zones pose many potential benefits for new businesses. To take advantage of these benefits, it is important to understand the requirements as well as the associated IRS regulatory guidelines. There are a few ways a business can meet the 50% test for instance. An experienced business attorney can help you navigate these regulations and ensure you take full advantage of the benefits offered by Opportunity Zones.
If you are considering locating your startup or existing business to an Opportunity Zone and have any questions, please reach out and contact the attorney at email@example.com.