Palestine, Texas: The Benefits of Investing in Its Opportunity Zone
Tuesday, June 29, 2021
Opportunity Zones were created in 2017 when the new Tax Cuts and Job Act was implemented. They are designed to spur economic development in less-developed and under-invested communities by providing tax benefits to investors. Now is a perfect time to invest in Opportunity Zones because capital gains taxes on earnings from many types of investments can be deferred until December 31, 2026.
There are over 8,700 Opportunity Zones covering all 50 states, D.C., and 5 U.S. territories. Texas’ eligible tracts were determined using a multi-step process to identify areas in particular need due to chronic unemployment, lower population density, and significant economic disruptors, such as natural disasters. These eligible tracts were certified as Opportunity Zones by the secretary of the U.S. Treasury, via the Internal Revenue Service.
Palestine’s Opportunity Zone
Palestine, Texas has a substantial Opportunity Zone that encompasses both the Willow Creek Business Park and Palestine Municipal Airport. To see the map of the entire area click here, and type “Palestine” in the search box, then select “Palestine, TX, USA (Anderson County)” to zoom in.
The 352-acre Willow Creek Business Park is owned by Palestine Economic Development Corporation and features landscaped streetscapes, fully functional utilities, access to high-speed communication technologies, and is just a few steps away from award-winning restaurants, hotels, and shopping. Since breaking ground in 2003, the park has attracted a host of high-growth, regionally robust startups and storied companies, but still has shovel-ready sites available. The park is ideally located as a distribution center because of Palestine’s modern rail and highway systems, as well as its close-proximity to three major airports. Beyond the Opportunity Zone tax benefits. Palestine Economic Development Corporation offers additional incentives and relocation assistance.
Investing in Opportunity Zones
Taxpayers can invest in Opportunity Zones through Qualified Opportunity Funds (QOF). A QOF is an investment vehicle that self-certifies by annually filing Form 8996 with its federal income tax return and is organized for the purpose of investing in Opportunity Zone real estate or business development. Examples of eligible types of investments would be stock purchases or taking interest in a partnership or in business property in the area.
Opportunity funds must make “substantial improvements” to the properties in which they invest. The Tax Cuts and Job Act defines substantial improvements as investments in the property that are equal to the original value paid by the fund. These must be made within 30 months. Certain businesses such as golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, race tracks or other facilities used for gambling, or liquor stores are prohibited for QOF investments.
The potential for the economy is considerable. U.S. investors hold approximately $2.3 trillion in unrealized capital gain that can spur significant economic growth if deployed into Opportunity Zones.
Benefits of Opportunity Zone Investment
Investors can defer tax on any prior gains invested in a QOF until the date the QOF investment is sold or exchanged, or December 31, 2026 — whichever comes first. In other words, to defer tax liability until 2027, an investor must hold the QOF investment through December 31, 2026. If the investment is sold before 2027, the capital gain moved into the QOF investment will become taxable the year that it is realized. By deferring tax payments, an investor can hold onto their capital longer and use it to boost earning potential.
Beyond the ability to defer taxation of previous gains, the longer a participant holds their QOF investment, the smaller their tax burden may be:
- If held for longer than five years, then investors receive a 10 percent exclusion of the deferred gain on their investment.
- If an investor holds for more than seven years, then they receive a 15 percent exclusion.
- If the investor holds the investment in the Opportunity Fund for at least 10 years, the investor is eligible for an increase in the basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. As a result of this basis adjustment, the appreciation in the QOF investment is never taxed in this instance.
With an end date of December 31, 2026, the “5-year, 10% exclusion of the deferred gain” is still available for taxpayers for investments made through December 31, 2021. Detailed information about the tax benefits of Opportunity Zones can be found on the IRS website.
Contact Palestine Economic Development Corporation Today
Time is running out to reap the benefits from Palestine’s Opportunity Zone. Contact PEDC today to see how they can assist you with the investment opportunities that await you.
Economic developers can download the e-book: “The Step-By-Step to Marketing Opportunity Zones.”