Lately I’ve been looking at a number of office buildings in San Juan– I own two businesses that are based here in Puerto Rico, and it’s about time the team moved to a larger space.
I was really impressed with what I saw– there are a number of compelling new commercial real estate projects in Puerto Rico right now… and almost all of them are due to the Opportunity Zone legislation.
We’ve talked about this a few times before: Opportunity Zones are areas that have been deemed ‘economically underdeveloped’. And qualifying investments that take place within those Opportunity Zones are eligible for incredible tax breaks.
There are Opportunity Zones in every single state in the United States, including territories like Guam, US Virgin Islands, and Puerto Rico.
In fact, nearly the entire island of Puerto Rico is an Opportunity Zone. It’s incredible.
Doing business inside a designated Opportunity Zone means that qualifying investors are eligible for tax-free capital gains. Forever.
It works like this–
Let’s say you’re a US taxpayer and have just sold your business. Or perhaps cryptocurrency, stocks, or your real estate portfolio. And, after you sell, you’re sitting on substantial capital gains.
Second, you’re going to owe Uncle Sam a LOT of money– 20% capital gains tax, plus the 3.8% Obamacare surtax, plus possibly state and local tax as well.
BUT… if you roll your capital gains into a special fund that invests in Opportunity Zones, you can defer the tax on those gains for up to 7 years.
And any additional gains you make on your Opportunity Zone investments will be tax-free forever, as long as you hold the investment for at least 10 years.
The one sticking point is that, in order to be eligible for this extraordinary tax benefit, you have to invest capital gains in an Opportunity Zone, i.e. money that you’ve recently earned by selling other investments.
But– even if you don’t have a lot of capital gains right now, you can still benefit from Opportunity Zones. Because, for anyone who is looking for funding to start a business or real estate project, Opportunity Zones are an absolute gold mine!
That’s because there’s hundreds of billions of dollars… potentially even more than a $1 trillion… of capital gains in the United States right now that’s looking for interesting Opportunity Zone projects to invest in.
And right now there’s simply not enough great Opportunity Zone investments for all that capital.
This means that Opportunity Zone entrepreneurs and developers have access to a ton of capital that NEEDS to be invested. And the other HUGE benefit is that, since the Opportunity Zone tax benefits require a 10-year holding period, you’ll have investors with a very long-term view.
This is an absolute dream for anyone looking to raise money.
And don’t think that you have to start your business or development in some remote area.
As an example, there are even parts of that are qualified Opportunity Zones– part of the East Village and Lower East Side. Or across the East River in Brooklyn.
So you could literally raise money for real estate projects in New York City and provide your investors with long-term, tax-free gains.
Or, you could start a tech company in certain neighborhoods of Austin, Texas, or even parts of Silicon Valley, which are designated Opportunity Zones. And if those companies become successful and end up being acquired in the future, the gains would be eligible for the Opportunity Zone tax benefits.
There are Opportunity Zones everywhere, from American Samoa to Zanesville, OH. And there are likely plenty of ways for created, talented individuals to create value in all of them.
(Take a look at the Opportunity Zone map here.)
But it’s not just the financial incentives that make Opportunity Zones so compelling.
I’m seeing it first hand here in Puerto Rico. The neighborhoods where these Opportunity Zone investments are taking place are clearly on the rise. You can taste it. The streets are cleaner, the neighborhood is nicer. New businesses are moving in, so there’s a new bustle and energy where before there was gloom.
All the economic activity is creating jobs, plus tax revenue for the local government.
Of course, that doesn’t stop the Bolsheviks from dumping all over this tax incentive. They can’t stand win/win deals. They hate the fact that investors (who are already wealthy) receive tax breaks from their Opportunity Zone investments.
About two weeks ago, the New York Times (AKA the Daily Worker) did a hit job on Opportunity Zones with an article entitled, “How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich”.
It’s just a Bolshevik propaganda piece howling about rich people receiving tax breaks, and making absurd assertions that these Opportunity Zone investments aren’t helping poor communities.
I was literally standing in some of those poor communities last week, witnessing incredible transformation in progress.
But none of that matters to Bolsheviks. All they care about is making sure that wealthy people don’t benefit.
They can’t stomach a win/win deal. And they’d rather see no one benefit, than a rich person receive a single penny in tax breaks.
It’s pure insanity.
But here’s the good news: these people aren’t in power. At least, not yet. Which means, whether you’re an investor, entrepreneur, or developer, this Opportunity Zone trend still has ENORMOUS potential, and it’s absolutely worth considering.