Back in 2016 the Federal Government passed the Tax Cuts and Jobs Act which brought about the biggest change in Commercial Real Estate in a very long time, Opportunity Zones.  The purpose was to bring about investment in economically depressed areas by providing several tax incentive programs to investors.  This has seen a tremendous amount of cash be placed in the Qualified Opportunity Funds and has started deployment in the last 18 months.

Where you’re seeing the best chance to use these programs locally are in emerging markets, some examples of emerging market on the New Hampshire seacoast that have Opportunity Zones (“OZ”s) would be Rochester, Somersworth, Dover, Seabrook and Durham.

Certain types of properties in certain locations can help make the properties somewhere between 15-25% more profitable. However, the number of investment opportunities that can apply are few and far between.

Key factors:

1. Where are the Opportunity Zones ? The properties that qualify must be in the specified census tracts.  You can find out if your property, or a property that you are interested in, is in the correct location by looking up the Opportunity Zone Database Map here.
2. What is the current value of the property ? This is important as any qualified opportunity fund must equal or be greater in amount to the building value.
3. How much improvement can take place?  The amount that can take place is unlimited
4. How much improvement must take place ? The amount that must take place has to be equal to or greater than the building value of the existing improvements within the first three years.
5. What is the timing of the investment? The property must be bought by the Opportunity Fund after 2016. Best tax savings end by December 31, 2021.
6. What are the benefits? The length of the hold period will determine the amount of the benefit. A ten year hold allows any capital gains on the investment property to be forgiven.  Be sure, however, that when you set up the fund, all the owners have the same vision in mind. The difference between a 0% capital gain tax rate and a 37% tax rate can really matter.
7. What are the criteria for the savings in taxes ? Deferred gains you put into the fund will have a delayed capital gains tax, which will be due December 31, 2026. If it does meet all the criteria of an OZ fund, however, you can be forgiven between 10-15% of any gains that you put into the fund and 100% of the gains when you sell the property as long as you hold it for 10 years.
8. Where can the gains come from ?  The gains can come from the sale of real property, stocks, bonds, art, and old equipment, just to name a few. 

Our team has been working with private developers, land owners, and municipalities to identify & quantify development deals within the OZs in New Hampshire and Massachusetts since the inception of the OZs and the finalization of the rules from the IRS earlier this year. 

Also be sure to set up the Opportunity Fund correctly.  You will need to speak with a knowledgeable lawyer and accountant familiar with OZ & IRS rules about how to properly protect your assets. Forms are available on the IRS website to start with this process, but to properly protect your entire portfolio and be sure not to get a hefty bill in 2026, it is always good to speak with legal and financial counsel.

For more information, see the IRS YouTube channel here.