Bill Allows Small Businesses Affected by the Pandemic Eligibility for Opportunity Zones Investment

The turmoil in the financial markets may position OZ leaders to be agents of the recovery through the projects they choose to develop. The big sell-off in the market as a reaction to the pandemic could become a significant driver for Opportunity Zone (OZ) investments.  Many sellers may be realizing capital gains without having a plan for reinvestment or tax deferral, especially given the uncertainty in the commercial real estate markets.  Like 1031 exchanges, OZ investments provide investors with time to make a decision — up to 180 days to invest in an OZ fund to defer capital gains tax. Together, these factors could create an even more compelling case for OZ investments.

But OZ projects may become even more relevant to the recovery with the introduction of a new bill in Congress specific to COVID-19.  Representatives John R. Curtis (R-UT) and Henry Cuellar (D-TX) recently introduced HR 6529, the Small Business Opportunity Zone Act, which would amend the OZ tax incentives program.  Under the proposed legislation, small businesses affected by the pandemic could qualify as qualified opportunity zones businesses (QOZB), allowing OZ investments to assist them in recovery.  Certain small businesses affected by COVID-19 and having gross receipts of less than $1 million would be exempt from the 70% tangible property requirement for one year following the date of enactment.  

The proposed bill also includes significant benefits that would apply to all Qualified Opportunity Funds (QOFs), not just small businesses affected by the pandemic.  The rate of tax on the deferred gain in the year of inclusion in the investor’s income would be capped so that it would not exceed the tax rate that would have applied in the year of gain deferral.  Investments of non-gain dollars in QOFs would qualify for the 10-year hold tax exemption that is currently available only for gain dollars invested.  Further, the fixed December 31, 2026 date for the inclusion of the deferred gain in the investor’s income would be replaced with a date that is 7 years after the date on which the Qualified Opportunity Zones Fund investment was acquired.  These changes would apply to investments in QOFs made after the date of enactment, except for the small business provisions, which would apply to property acquired by QOFs after the date of enactment. 

Measuring the impact of an OZ project helps it to raise capital and demonstrate success. Now, more than ever, there is an awareness and desire to invest in projects that have social impact — that do good.  

JTC Americas, Formerly NES Financial’s scalable Opportunity Zone fund administration is designed to minimize risk and increase investor confidence.  Its OZ fund administration solution leverages technology to streamline complicated tax and administrative requirements and curtail fraud and abuse, while helping the Opportunity Zones initiative do the good it’s intended to do.

For fund managers and investors, this means a purpose-built solution that embeds security, transparency, and regulatory compliance at each step of an investment life cycle.

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