The Opportunity Zones program, established via the Tax Cuts and Jobs Act, aims to spur long-term private sector investments in low-income communities nationwide. Baker Tilly offers a comprehensive view of Opportunity Zones working with both investors and project sponsors.

    How it works

    The  Opportunity Zones program  offers federal tax incentives for investing realized capital gains in QOFs, which are investment vehicles created to attract investment into under-invested communities. All or a portion of the realized gain must be invested in a QOF within 180 days. [1]

    Virtually any entity or individual required to report capital gains can receive Opportunity Zone benefits. The investment offers three potential tax benefits:

    1. deferral of the tax on the original gain until the earlier (a) the date the taxpayer sells or exchanges its investment in the QOF, or (b) December 31, 2026.
    2. reduction  of the original gain: (a) 10 percent discount if the QOF investment is held for five years by Dec. 31, 2026 or the date of disposition, if earlier; (b) an additional 5 percent discount (15 percent total) if held for seven years by December 31, 2026.
    3. No taxable gains or recapture of depreciation on the QOF investment if held for 10 or more years.

    [1]  Investors receiving gains on a K-1 from an investment may be able to elect December 31 of the tax year as the date of the gain (regardless of the date of the actual capital gain event), and therefore have until June 29 of the following tax year to make an investment into a QOF. Please consult with your tax advisor for eligibility to make this election.

    *This model assumes a 23.80% federal tax rate and state tax rate of 5.36%. This model is for illustration purposes only, and contains certain financial assumptions as to the possible future results that are inherently uncertain and subjective. We make no representation or warranty as to the attainability of those assumptions or whether future results will occur as illustrated

    What’s next?

    There are a number of open issues surrounding the Opportunity Zones that require guidance from the U.S. Treasury Department or Internal Revenue Service. Since October 2018, the IRS has provided two rounds of guidance to operationalize the program.  Our detailed analysis of this guidance and its practical implications are located here. We will continue to provide regular updates as additional guidance is released and the program continues to take shape.

    How we can help

    By leveraging our expertise in real estate development, transactions and specialty tax planning, Baker Tilly is uniquely positioned to help potential investors and project sponsors maximize the benefits afforded by the Opportunity Zones program. If you are looking to invest gains in or leverage the Opportunity Zones program for a business or project benefitting low-income communities, connect with us today.

    Opportunity Zones

    Investor services

    Investor services include tax planning, and professionally structured, direct project investment offerings that have undergone rigorous due diligence by Baker Tilly Capital.

    Project sponsor services

    • Financial modeling showing the after-tax impact of OZ benefits and recommending strategies to optimize the capital stack
    • Projected financial statements for private placement offerings
    • Tax structuring for Opportunity Zone compliance
    • Cost segregation studies to enhance returns through accelerated depreciation recovery
    • Construction audit services to ensure adherence to construction contract terms
    • Fund administration and investor relations
    • Identify and source other credits and incentives
    • Potentially raise capital through Baker Tilly Capital (subject to diligence and an approval process)