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Qualified Opportunity Zone Fund Investments [VIDEO]

Video Transcript: 

I'm Fred Schubkegel. I'm a partner here at Varnum and I work on corporate transactions.

My name is Katie Roskam. I'm an attorney at Varnum and I focus my practice on tax law.

What I really focus on day to day is putting transactions together that involve tax credits, grants, tax increment financing, those sorts of incentives and benefits to really make the impossible deal possible. Opportunity zones are a nice new tool that we have in our toolbox for those kind of transactions.

Qualified Opportunity Zones came about as part of the Tax Cuts and Jobs Act which was enacted at the end of 2017. These are designed to get investors to invest capital gains in these economically distressed areas by providing them tax incentives for doing so. And that investment has to be made within 180 days so that goes by quickly and an investor needs to be ready to make that investment really before they trigger that capital gain if it all possible.

Qualified Opportunity Zones are located across the state of Michigan. This includes places like Detroit, Kent County, Holland, the lakeshore, Houghton and Marquette...every county in Michigan across the Lower and Upper Peninsula.

The first benefit is tax deferral. So a taxpayer invests a capital gain that the taxpayer has earned in the tax period and the first advantage is not having to pay that capital gains tax at all, as long as that taxpayer holds in the opportunity zone.

The second benefit of the qualified opportunity zone is the ability to obtain a step-up in basis of anywhere from 10 to 15 percent, depending on whether or not you hold that fund interest for a period of five to seven years. So at the end of a five-year term of your investment in the opportunity zone, you actually get a step-up in basis of 10 percent. So now you're only going to pay tax on 90 percent of the investment if and when that capital gains is recognized. If you hold for seven years, you get an additional five percent step-up in basis for a total of 15 percent.

And finally, the last benefit of the qualified opportunity zone is the ability to avoid additional tax on the appreciation in that investment if you have a holding period in that interest for over 10 years. So if you make an investment in the opportunity zone and you double your money in the 11th year when you sell, you don't pay any tax on the gain that occurred.

In order to follow the guidelines in the act, you also have to look at the IRS regulations that they issued to give us further guidance than the terms of the act itself and then those regulations are always amended and there's private letter rulings that go in, so it's more of a dynamic process. So we're monitoring that. We have collected all of that in a white paper for folks to understand where at least it stands today. They can obtain that. You can go to Varnumlaw.com/QOZ. As that continues to evolve, we'll continue to monitor that and post things there.

 

© 2019 Varnum LLP

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About this Author

Fred L. Schubkegel, corporate attorney, Varnum
Partner

Fred provides general legal counsel to private business interests and nonprofit organizations. He has over 30 years of experience assisting for-profit and nonprofit companies with advice, strategies and services related to startup, growth, development and exit, including entity formation and governance, financing, contracts, mergers and acquisitions, executive compensation, asset protection and business succession planning.

Fred has extensive knowledge in real estate and economic development with a particular knack for packaging incentives and credits to make the...

269/553-3514
Katie K. Roskam, Michigan, tax attorne
Associate

Katie is an associate in the firm’s tax practice team. She focuses on federal income tax matters for both foreign and domestic clients and issues pertaining to employee benefits and executive compensation. Katie's previous work experience includes researching and writing appellate briefs while clerking at Even & Franks PLLC in Muskegon for several summers. She also worked as a tax research assistant at Loyola University School of Law. She served as an extern for Judge Ronald A. Guzman in U.S. District Court for the Northern District of Illinois and has worked as an intern in the Muskegon County Prosecutor's Office.

Education

  • Northwestern University School of Law
    Chicago, Illinois
    L.L.M, in taxation with honors, 2013
  • Loyola University Chicago School of Law
    Chicago, Illinois
    J.D., magna cum laude, tax certificate, 2012
  • Hope College
    Holland, Michigan
    B.A., magna cum laude, 2009

Admissions

  • United States District Court for the Western District of Michigan
  • U.S. Tax Court
616 -336- 6494