Opportunity Zones: An Enormous Investment Incentive Program
November 11, 2019
How the SBA Can Help Start-up Companies Compete for Funding – The Business Plan
December 13, 2019
On November 13, 2019, University of Miami hosted the Federal government’s SBIR tour. Also known as America’s Seed Fund, the SBIR is a multi-agency program that promotes US small companies with funding to enable them to take innovative ideas to the next step of commercialization. Last year alone, the SBIR provided over $3.0B in early stage funding. This event was well attended, and JC Venture Capital was there to conduct the luncheon keynote address. The topic: Opportunity Zones.
The federal government created Opportunity Zones (OZ) under the Tax Cuts and Jobs Act (the “Act”) which went into effect January 1, 2018. There are almost 9,000 of these designated zones throughout the country, and they are attracting a lot of attention from investors, entrepreneurs and community advocates. And this comes as no surprise.
We spoke about the benefits that Opportunity Zones afford to these three groups in what is a win-win-win scenario. Investors stand to see a significant increase in their after-tax returns on investments in Opportunity Zones where capital gains are untaxed. The increase we estimate to be over 40% compared to the same investment outside of an OZ. In addition, investors can defer and reduce existing capital gain taxes.
Entrepreneurs also benefit. While most of the attention on Opportunity Zones has been on property investments, there are considerable benefits to business owners. The most significant benefit comes in the form of potential new capital from investors looking to make OZ investments. Since there is no cost to setting up an Opportunity Zone business, these benefits come with no real downside.
Finally, local communities are seeing the benefit from new investment coming into their areas. As mentioned above, property investors have led the charge into opportunity zones, but investors in local businesses are starting to look at OZs for new investment ideas. Venture capitalists are starting the raise funds to capitalize on the new tax rules, which will be creating high demand for investments in OZ businesses.
Two short years later, OZs have become the largest investment tax incentive program in US tax history, potentially unlocking the $6.5 trillion in unrealized capital gains held by US investors, almost 50% of US G.D.P., for investment in these zones. JC Venture Capital has been actively investing in these zones since their creation, and the opportunities are only getting better.
