Why Opportunity Zones Are Appealing to CEOs

Opportunity zones have been around since the passage of the tax bill in late 2017. However, as the 2020s approach, the commercial real estate and accounting communities are finding more clarity as to how this tax program works and how to leverage it. As a CEO, you have three primary ways to benefit from this program:

To take advantage of the opportunity zone program for your company or yourself, there are a few rules that you have to follow. First, you only receive the tax benefits if your company or you invest money that you received as capital gains. Next, the property in which you are investing has to be in a census tract designated as an opportunity zone. You have to set up a special entity called a "qualified opportunity fund" to make the investment. And, finally, you have to build a new building or significantly improve an existing one -- purchasing an existing property and putting on some proverbial lipstick won't do the job.

An Opportunity Zone Location

Because of the complexities of the opportunity zone program, your company might choose to sit the whole process out. Whether it's that you don't have capital gains to spend, don't want to build or improve a whole building or aren't in a position to follow the other rules of the program, you may still benefit from opportunity zones. After all, the program is spurring development in many desirable areas, and you may choose to locate your business in one of those developments. In addition, because those developers are benefiting from preferential tax treatment, you may benefit from a better deal.

Opportunity Zone Tax Benefits

If your company is looking at constructing or improving a building and has capital gains to spend, setting up an opportunity zone fund as a subsidiary to hold the asset could be a strategic option. Your company will receive the opportunity to defer the capital gains that you put into the investment, and can also receive a gain exclusion if you hold the asset long enough. Given that you are likely to hold a building that you construct for your own use for a relatively long period of time, you could be a good candidate to receive the tax savings.

Opportunity Zones and You

If your company isn't a candidate for the opportunity zone program, but you are, there are ways to take advantage of it. For example, if you have capital gains to spend, you might choose to build a building and lease it to your company --as long as your tax and legal teams approve this strategy. Alternately, many developers and sponsors offer opportunity zone funds where you can use your personal capital gains and invest them in developments of various types.

Whether you are investing your capital gains or your company's, the opportunity zone program can be a powerful way to implement tax strategy. Alternately, the program will also continue to spur new development in upcoming and currently desirable areas.