With the new tax plan, the Tax Cuts and Jobs Act of 2017, came with a multitude of new tax codes. One of the new items in the plan is Opportunity Zones. They are community development tools incentivizing investors to invest long-term capital in low-income communities.
What does this mean for Nashville?
Well, the state of Tennessee has 176 opportunity zones, Davidson County has 18. That’s a lot of zones for one county, and a lot of incentives for investors to build in at least one of these locations.
Investors can invest in multiple endeavors including Retail, Low-income housing and standard business redevelopment opportunities.
As you know, Nashville is booming, but Quality Opportunity Zones developments have to add to the quality of life in the community. Someone can’t build a random building and expect to get a tax credit. It has to build the quality of the community to qualify for tax incentives.
What are some of the tax incentives?
Temporary Deferral of Capital Gain
According to IRC Section 1400Z-2(a)(1)(A) of the Tax Code, the taxpayer can choose to temporarily defer capital gain from the sale to, or exchange with, an unrelated person of any property that the taxpayer owns as long as the taxpayer reinvests the deferred amount in a qualified opportunity fund. The taxpayer must do this within 180 days. Gain deferral is only temporary and must be acknowledged the tax year the investment is sold or by December 31, 2026, whichever is the earliest.
There is also something known as a “step-up” basis, where if you elect for “Temporary Gain Deferral” for your property for five years, your investment can increase by 10% of the amount of the capital gain. After seven years, the gain increases by 15% and by ten years it permanently defers gains.
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