Banking & Finance, Economic Development, and Government

Website offers ‘opportunity zone’ help

MSHDA, MEDC collaborate to aid investors in navigating tax incentives.

October 4, 2019
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The Michigan State Housing Development Authority and Michigan Economic Development Corporation recently launched a new website to help investors navigate tax incentives tied to “opportunity zones” in the state.

Miopportunityzones.com provides information and resources for investors, entrepreneurs, developers and other stakeholders around Michigan’s opportunity zones and corresponding tax incentives.

Opportunity zones were created as part of the 2017 federal tax overhaul and are national programs designed to increase long-term capital investments in low-income communities that have experienced a lack of business growth.

“Michigan’s communities, particularly our redevelopment ready communities, are well poised to take advantage of opportunity zones investment to provide more opportunities for growth and development across the state,” said Jeff Mason, CEO of MEDC. “Working together with our partners at MSHDA and other state agencies, we are working to make more businesses and developers aware of the benefits of investing in our opportunity zones, and this new website will be an important resource in helping to tell that story.”

Opportunity funds can be used to create new businesses or for new commercial and residential real estate or infrastructure. Opportunity funds also can be used to invest in existing businesses if it doubles the investment basis over 30 months.

Karen Gagnon, policy adviser for the MSHDA, said certain developments, classified as “sin” businesses, are barred from receiving tax incentives in an opportunity zone. Casinos or other gambling businesses, country clubs, golf courses and liquor stores are some examples of nonqualifying investments.

“There has to be some assurance of equitable development,” Gagnon said. “Detroit, for example, has a community benefit agreement.”

Lori Mullins, director of community development incentives for the MEDC, said there is opportunity for communities to assess the impact of qualifying developments in their area.

Reinvesting deferred gains in art sales also can help grow Michigan communities. The gain from sales of appreciated assets, such as works of art or antiques, can be reinvested into a qualified opportunity fund. Depending on how long the investment is held, tax benefits accrue in five, seven or 10 years. 

There are three types of tax incentives that relate to the treatment of capital gains: temporary deferral, step-up in basis and permanent exclusion. Each incentive is tied to the longevity of an investor’s stake in a qualified opportunity fund.

For investors to receive temporary deferral of inclusion in taxable income for capital gains reinvested, the deferred gain must be recognized on the date the opportunity zone investment is disposed of or Dec. 31, 2026, whichever is earlier.

Taxpayers who defer gains through an opportunity zone fund investment receive a 10% step-up in tax basis after five years and an additional 5% step-up after seven years. To take full advantage of the 15% step-up in tax basis, the taxpayer must invest by Dec. 31, 2019.

The greatest incentive is permanent exclusion from taxable income of capital gains from sale or exchange of an investment if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an opportunity fund.

Opportunity funds also can be combined with other incentives such as new market tax credits, low-income housing tax credits and historic rehabilitation tax credits. State and local governments also can consider other opportunities, such as job training, to help entice investors.

Michigan Gov. Gretchen Whitmer signed an executive directive on Jan. 2 that encourages expanded business opportunities for low-income communities and underutilized business areas in Michigan and specifically touches on principal business locations being established in qualified opportunity zones.

There are 288 opportunity zone census tracts in Michigan, with 23% of those existing in rural areas; Kent County has 10 and Ottawa County has one.

Most of the census tracts in greater Grand Rapids exist south of Wealthy Street in a cluster east of the Grand River and as far west as Fuller Avenue.

In total, more than 8,760 qualified opportunity zones exist across the U.S., its territories and Washington D.C.

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