What does that even mean? How does this affect me? What does that mean for our local real estate?
Simply stated, its an opportunity quickly passing many people by. Let us start with the basics, Opportunity Zones and Funds were created from the historic 2017 TAX Act with one of the most significant incentives expiring by the end of 2019. The Opportunity incentive contained two critical parts, identification of applicable zones, and the creation of a fund fueled by tax deductions.
Let's dive a little deeper into the tax benefits that will fuel the fund that will eventually invest in the Opportunity zones identified. A new, or expanding businesses, located in an opportunity zone can potentially benefit from a) deferral of gain on new investments in such business b) avoidance of gain after holding such assets for ten years.
There are contributing factors to how much deferral benefit taxpayers can receive. The most significant factor is when the initial investment consummated benefiting the taxpayer who puts their gains in first and holds it the longest. For more details on the Deferral Benefit.
For investors that hold the opportunity asset for ten years, appreciation is tax-FREE for more details on the Avoidance Benefit.
To learn more about the critical Capital Deployment Timeline.
Now that we understand the basics around the fund fueled by tax benefits, how will this affect the Real Estate, Home Prices, and Homes for Sale? To understand the full impact, we need to know where our local zones are located.
With the closest zones being located in North Missoula, ALL of Mineral County, and south of Hamilton this could have a direct impact on the overall market prices in these ZONES. With some suggesting that prices can raise 20%. Now this all depends on how aggressive local communities work on making their zones attractive to the investors, more investors concentrated in fewer zones will increase overall demand for the "product" (real estate) and as a result, increase the price.
As previously discussed, one of the most significant benefits expires at the end of 2019. If our communities want this massive investment in our local economy, we need to start acting now and prepare our citizens and encourage them to provide the investors a plan on how they would like to see this development happen.