Opportunity Knocking in New Mexico:
A Guest Column by Deborah Burns, CEO investUS LLC
In this guest column, Deborah Burns, CEO, investUS LLC talks about the investment value to be found in locating businesses within Opportunity Zones! She explains why startup CEO’s should be thinking of locating operations in an Opportunity Zone, and using a fund to help their investors avoid capital gains taxes.
One of the best kept secrets of the December 2017 tax legislation is the “Investing for Opportunity Act”. It’s a timely program offering capital gains tax deferment and reduction to any US taxpayer that invests their capital gain into an Qualified Opportunity Fund (“ QO Fund”) that in turn invests in Opportunity Zone investments. New Mexico Economic Development Department did a great job nominating 63 eligible New Mexico zones that have now been approved as Opportunity Zones ( interactive map).
The US Treasury department estimates there is over $7 trillion in unrealized capital gains that could be invested into Opportunity Zones given the tax deferment and reduction incentives. The best feature for Opportunity Zone investment recipients is that the QO Fund investment in their company is also capital gains tax free if it remains invested for at least 10 years. QO Funds will be a new conduit of investment capital flowing into Opportunity Zone investments driven by the desire to stay invested for at least 10 years to be capital gains tax free upon the exit.
To take advantage of these tax savings, the US tax payer must invest in a QO Fund within 180 days of realizing the taxable gain. It can be a taxable capital gain of any asset by any US taxpayer. The QO Fund can invest in any qualified business or asset in a US Opportunity Zone excluding “sin” businesses consisting of golf courses, country clubs, massage parlors, hot tub facilities, race tracks or gambling facilities, and liquor stores as defined in the tax legislation.
One would wonder why you haven’t heard of this tax incentive or any promotions for QO Funds. The lack of press coverage for the legislation hasn’t been helpful. To be sure, putting together a Qualified Investment Fund has its challenges. First, the IRS has yet to write the tax rules for the legislation and there is no indication when it might be forthcoming. To put together a QO Fund today requires hiring a sophisticated tax advisory firm that has a dedicated team focused on the new legislation and experienced tax counsel. Second, as with any private equity fund, the fund manager must comply with federal and state securities laws, provide fund administration and reporting, financials statements and tax filings for investors. This is harder than it seems since the IRS has not yet created the reporting requirements nor the tax forms. Then there are the various liabilities of any securities offering and investment transaction. All in all, QO Fund management is a challenging undertaking.
Today, investUS, as fund manager, is actively reviewing investment opportunities in New Mexico Opportunity Zones that are shovel ready now or will be ready for investment in early 2019.
For more details on the tax legislation, tax savings computations and recent IRS FAQ’s, contact your tax advisor or tax attorney. For more information on the investUS QO Fund, contact Deborah Burns at dburns@investUS-eb5.com.