Sikora Law’s Opportunity Zone Services
Sikora Law’s Opportunity Zone attorneys can cover all of your Opportunity Zone legal needs.
Our team of lawyers has structured over $250 Million in Opportunity Zone real estate investment deals, and has played a consulting role in an additional $300 Million in real estate investments deals. Our Clients have been awarded over 25% of all Opportunity Zone tax credits issues by the State of Ohio, more than any other firm. If you have a need related to Opportunity Zones, Sikora Law can assist you well, from development, to investment, through disposition.
Sikora Law offers the following Opportunity Zone legal related services:
Qualified Opportunity Fund Formation
- Fund creation, operation, and compliance
- Timing strategies for deployment of capital
Company Organization & Tax Compliance
Structuring of entities to utilize Opportunity Zone Program
Drafting of company Operating Agreements to comply with Opportunity Zone law
Advising Clients on applicable federal tax forms necessary for their annual filings
Financing & Securities
- Advising Clients on equity financing, multi-source financing, non-traditional debt, and other economic development incentives
- Drafting documents for capital raise compliance and offerings
- Connecting Clients with lending sources and private investors with capital gains
Project Development for Real Estate Investment
- Equity, debt, and financing structuring for real estate acquisitions and development
- Drafting real estate purchase and sales agreements and entity purchase and sales agreements
- Legal guidance related to target asset selection, acquisition, and due diligence review
- Drafting and reviewing lease agreements and property management agreements to comply with Opportunity Zone law
What is the Opportunity Zone Program?
The Opportunity Zone program was created by the Tax Cuts and Jobs Act passed in December 2017.
The driver behind the Opportunity Zone program was a focus on addressing the uneven economic recovery of certain census tracts following the housing market crisis in 2007-2008, and the goal of the program was to connect an estimated $6.1 trillion dollars in unrealized private capital gains to accelerate recovery in those communities. In other words, the program uses private sector equity investment to target growth in certain statistically distressed communities.
Opportunity Zones are by-design not the most distressed areas. The federal government gave the nomination power to the local leaders as they believed those individuals would not only know which areas needed aid in recovery, but also those areas in which they believed private investors would be willing to make long-term investments. Because of this balance that state leaders had to consider, some areas that were already recovering were selected, while some areas that have been more neglected were not.
Trusted by some of the best in the industry.
You are in good company.
Thanks to their intimate knowledge, experience, and familiarity with the Ohio Opportunity Zone Program, Sikora Law has saved us a great deal of time, and helped make some of our largest and most complicated projects economically feasible and even more attractive to our investors. Plus, we enjoy working with them.
Frank Sasso, President at Kaufman Development
How does the Opportunity Zone Program Work?
The Opportunity Zone program allows a taxpayer who recognizes a capital gain to defer the tax associated with that gain, and potentially eliminate a portion of the tax owed by investing capital gains into what is known as a Qualified Opportunity Fund.
Generally, a taxpayer has 180 days from the date of the sale or disposition that gave rise to the capital gain to make an investment into a Qualified Opportunity Fund; however, special rules may apply in certain circumstances, to allow more time.
The Qualified Opportunity Fund is an arms-length investment vehicle that has been created for purposes of using the program.
Investment into a Qualified Opportunity Fund is an absolute prerequisite to being able to utilize the program. Most investors establish an Opportunity Fund that is specific to a deal they are working on, while others may choose to invest in large Qualified Opportunity Funds that target multiple investments. The Qualified Opportunity Fund then makes investments with its assets into what is known as Qualified Opportunity Zone Property, which property must compose 90% of the Qualified Opportunity Fund’s assets, in order to remain compliant.
Qualified Opportunity Zone Property could also fall into one of the following categories:
- Qualified Opportunity Zone Stock
- Qualified Opportunity Zone Partnership Interest
- Qualified Opportunity Zone Business Property
This allows the Qualified Opportunity Fund to be able to either hold a real estate asset directly, or it may choose to hold an interest in a lower-tiered entity (known as a Qualified Opportunity Zone Business) which holds the real estate asset. Both of those structures have their benefits and drawbacks, and the determination of how best to structure a deal must be carefully considered.
The Qualified Opportunity Fund and Qualified Opportunity Zone Business then manage the investment similar to how they would any investment. Of course, there are certain requirements that must be met and ongoing reporting that must be accurately documented. However, now that the final Regulations have been issued, investors can move forward with a clear understanding of how to see returns on their investment through to ultimate disposition. These additional requirements must be considered on a case by case basis, and the particular requirements that will apply to a taxpayer’s investment will largely depend on how the investment has been structured.
What are the benefits?
The Opportunity Zone Program provides three statutory tax incentives to encourage long-term private investment into those targeted geographic areas.
Temporary deferral of obligation to pay capital gains tax until
December 31, 2026
Partial capital gains tax avoidance due to a step-up in basis on the deferred capital gain
Permanent exclusion of capital gains tax due to appreciation on the taxpayer’s investment
Ohio’s Complementary Opportunity Zone Law
Ohio was one of the first states to pass a complementary Opportunity Zone law and has one of the most favorable incentive programs for investors.
House Bill 166, which created Ohio’s complementary incentive program, passed the Ohio General Assembly on July 18, 2019 and became effective on October 17, 2019. The Ohio incentive provides for a state income tax credit in the amount of 10% of the total amount an Ohio taxpayer invests into a Qualified Opportunity Fund that invests solely into one or more Ohio Opportunity Zones. This tax credit is capped at $2,000,000 per taxpayer, and the State of Ohio has allocated $50,000,000 to be awarded to investors making use of the Program during Ohio’s fiscal year 2024, with future budget allocations to be determined. In its first year, Ohio taxpayers were awarded nearly $30,000,000 in tax credits, and the demand for this program is expected to rise in future years. Sikora Law was involved in finalizing the language of Ohio’s law and advocating for its passage, including providing testimony to the Ohio General Assembly in support of the Bill. Sikora Law has also drafted two Bills since then, both of which passed, and both of which further expanded and improved Ohio Opportunity Zone law.