Category Archives: News

Opportunity Zones Program

It’s been over a year since Congress passed the Tax Cuts and Jobs Act of 2017. Let’s take a look at Opportunity Zones, a new community investment incentive and tool launched by the act.

The goal: encouraging long-term investments in low-income rural and urban communities nationwide.

The Opportunity Zones program offers a tax incentive for investors to re-invest their unrealized capital gains into dedicated Opportunity Funds. It offers some tax breaks parallel to the popular 1031capital gains exchange, but with more restrictions. Do the benefits make it a good trade-off?

Tax Incentives Offered

The Economic Innovation Group (EIG), a bipartisan public policy organization, has useful online resources for investors wanting to learn more. They are not necessarily entirely objective, however, having helped develop this legislation.

Briefly, here three tax incentives offered by the program, as expressed by the EIG:

  • A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026
  • A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation
  • A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund

On their fact sheet, EIG offers a useful side-by-side comparison of investment returns in a standard portfolio versus an Opportunity Fund, based on 5, 7 and 10 year durations.

While the dual potentials of the program—benefiting struggling neighborhoods while offering tax deferral—are attractive, some details of the program are leaving investors wary.

Some Rules Remain Unclear

On Valentine’s Day 2019, the IRS held a 5-hour-long hearing on the Opportunity Zones, at which 150 people were turned away. Clearly, investors are curious, but the end date of 2026 represents a fairly short investment window, and some rules remain unclear.

Forbes’ February 22 headline “Opportunity Zones – Look Great For Everybody Except Investors” is a sobering example of the possible limitations of the program. Author Peter J. Reilly, a self-described “cynical bastard,” advises investors “forget about it. It really doesn’t make much sense at all.” However, he acknowledges potential upsides for developers and property owners.

With nearly 8,700 designated Opportunity Zones in the US, the program is certainly worth exploring. Due diligence is a must, however, for a program this young whose rules are still being solidified.

BUSINESS APPRAISALS

Opportunities in Business does Business Valuations, for a wide variety of reasons.  We do them every week-for all kinds of businesses.

Many valuations or “appraisals” are required because the owner or owners have decided to sell their business. Some are done for estate planning purposes, or because of divorce. We have completed hundreds of reports over the past 33 years.

There is an art to determining the “going concern” value of a business; there is as much art as there is science.

When we started valuing businesses over 33 years ago, there wasn’t many resources for appraisers to find data on sold businesses (small, closely held, private businesses). That has changed. Now there are sources of information on businesses that have actually sold-across the country. In fact we contribute data to these sources-like Pratt’s Stat’s, BizComps, Value Source etc., on the businesses we sell. In return, we have access to their data bases, which helps us help our clients.

It’s interesting-because we both sell businesses and do Business Valuations-to analyze the data from around the country and see the multiples of earnings, or “capitalization rates” (one factor in valuation of a business), by industry and by the size of the business sold.

Our experience is that a wide variety of factors influence the value of a business, beyond earnings (defined in a wide variety of ways by the way), and the assets included in a sale. Purchasers take a variety of factors into account beyond just the net income shown from historical financial statements.

We have an advantage-because we are part of the market-in knowing what influences value. We crunch the numbers, just like any appraiser should, but we also can analyze value in light of current market conditions and trends.

If you are considering selling your business, or need to have an appraisal done for any reason, contact us at info@oibmn.com  and a qualified representative from our company will contact you.