Tax Benefits Aren’t The Biggest Benefit of Opportunity Zones

Investors are lining up to buy projects in qualified opportunity zones and take advantage of the subsequent tax benefits, but the capital gains tax forgiveness is one of several benefits that come with opportunity zone investments. Access to capital is among one of the major benefits of these zones, starting with cheaper capital.

“Traditional equity capital is focused on the best sponsors, locations, and projects. But, much like EB5—which encourages non-U.S. citizens to invest in real estate in exchange in for a benefit of citizenship from the U.S. government—qualified opportunity zone investors will receive tax benefits for investing in qualified opportunity zones and qualified opportunity zone funds,” Bryan Shaffer, principal and managing director of George Smith Partners, tells GlobeSt.com. “We believe the investor will receive 200 to 400 basis points in tax benefits, so a developer will be able to obtain cheaper capital for projects located within a qualified opportunity zones.”

In addition to cheaper capital, opportunity zones also present a new source of long-term equity, since opportunity zones require a 10-year hold to reap the benefits. “Unlike traditional equity capital, qualified opportunity zone investments require a 10-year hold time to receive the strongest tax benefits, so they will provide a unique source of equity into which investors can eventually tap,” says Shaffer.