Enhancing Returns From Opportunity Zone Projects By Combining Federal, State, And Local Tax Incentives To Bolster Community Impact
Skeptics may call the federal Opportunity Zone (OZ) program a tax dodge for the wealthy, but there is strong bipartisan support for the program at the federal, state, and local levels. Furthermore, underserved communities (and the small businesses therein) could benefit from billions of dollars in new investments in long-term capital that they might not have received through conventional bank loans or government programs—especially given the current unique and challenging economy. The findings noted in this article are based on the authors’ presupposition that President Biden’s proposed tax increases have increased interest in the deferral and ultimate tax exemption aspects of the OZ program, and investment momentum is likely to continue for the foreseeable future.
If there is one absolute certainty in life, it is one day all of us will have our last day. The unfortunate reality is that death does not just come calling for the aged and infirm. Every day in the United States thousands of people die from causes that are not natural, such as auto accidents, accidental poisoning (mostly drug and alcohol related), falls, drowning, boating and aircraft accidents, and even animal attacks. Some years ago, not far from this author’s home in Southern California a jogger was killed by a mountain lion. Not long after this incident, another runner was killed by an alligator in Florida. In fact, Florida seems to have more than its share of gruesome unnatural deaths. In 2013, Jeffrey Bush, a 37-year-old resident of Hillsborough County, Florida, was at home in bed, and a giant sinkhole swallowed the entire house—with him in it. They never found the body.
In the vast majority of cases involving sudden deaths, Federal Estate Tax is not an issue due to the current $11.70 Million Estate Tax exemption (as of the date of this writing) that is granted to each natural person. Most people do not have estates that come anywhere near this amount. But what of the ultra-wealthy? Those 1/10 of one percent who fly through rarified air at 40,000 feet in their private Gulfstream and Lear Jets and take their summers in the Hamptons? What happens when they make their final exit without the chance to say goodbye? At least as far as Federal Estate Taxes are concerned the answer may be—not much. On the other hand, it may be—quite a lot. Which answer applies to any particular case depends on the quality and quantity of the estate planning done by the recently departed.
What Is Cost Segregation?
Cost segregation is a tax planning strategy that can help real estate owners and tenants to accelerate depreciation deductions. Although standard depreciation occurs over a lengthy 39-year period, many assets within a structure–from plumbing and electrical fixtures to flooring–are not designed to last that long.
The ability to break out such assets for a five-year, seven-year, or 15-year recovery period helps accelerate depreciation, defer taxes, and improve cash flow.
Why Are Cost Segregation Studies Useful?
An engineering-driven cost segregation study can be useful at any point in the real estate cycle. Whether a property has been newly constructed, recently acquired, or undergone renovations or tenant improvements, a cost segregation study is likely to be a valuable depreciation tool. In certain cases, a look-back study can be appropriate.