Opportunity Fund Investing in Florida: The Basics
In 2018, Governor Rick Scott announced the designation of 427 Qualified Opportunity Zones (QOZs) throughout the state of Florida. These O-Zones are spread across out the state, however, they are concentrated in some of the state’s most populous areas; 68 Opportunity Zones are in the state’s most heavily populated county, Miami-Dade, while 34 Opportunity Zones are located in Duval County, home of Jacksonville, Florida’s most populous city. There are approximately 350,000 commercial properties located inside the state’s O-Zones, about 12% of all commercial properties in the state.
What are the Opportunity Fund Tax Benefits in Florida?
The Opportunity Zones program offers investors a way to defer their federal capital gains taxes by investing in Opportunity Funds, specialized investment vehicles which must place at least 90% of their assets in eligible businesses or real estate inside a Qualified Opportunity Zone (QOZ). In order to be eligible for investment, a company must do at least 50% of its business inside a QOZ. And, for a property to be eligible, it must either be new construction, or the Opportunity Fund must invest more into rehabilitating the property than it invested to purchase the property in the first place.
Opportunity fund investors who invest within 180 days of selling an asset can defer paying capital gains taxes until April 2027. If they keep their investment for at least 10 years, they can enjoy a 15% discount on their capital gains tax liability, as well as paying zero capital gains taxes on any appreciation their investment makes after it enters the Opportunity Fund.
The Most Promising Opportunity Zone Areas in Florida
As we just mentioned, Miami-Dade County has an impressive 68 designated O-Zones within its borders, consisting of 27,000 properties, about 9,000 of which are multifamily properties. Since several major tech companies have recently opened offices in the Miami area, demand is likely to be rising quickly, which could make the area an excellent location for Opportunity Funds looking to invest in rehabilitating apartment complexes. Likewise, Orlando, another fast-growing area, has 6,000 commercial properties located in Opportunity Zones. And Tampa, with over 10,000 commercial properties inside Opportunity Zones, is also an area ripe with potential for Opportunity Fund investment.
Opportunity Funds in Florida May Be Able to Use The Low-Income Housing Tax Credit (LIHTC) Program for Affordable Housing
The Low-Income Housing Tax Credit (LIHTC) program is the nation’s primary tax incentive program to encourage the development of affordable housing. Developers compete for a limited number of credits, which they can sell to investors, who will receive a 10-year dollar-for-dollar credit against their federal income taxes. In order to qualify for the LIHTC, a property generally must pass the “20/50 test,” meaning that they have allocated 20% of the units for borrowers making less than or equal to 20% of the Area Median Income (AMI), a statistic published by the Department of Housing and Urban Development (HUD). Alternatively, they may be required to pass the 40/60 test, in which they allocate 40% of the units to borrowers making at least 60% of the AMI.
The developer must generally keep the property for a minimum of 15-years, after which they can sell it. However, in many cases, the new owner must keep the property affordable for a longer period of time, all depending on the initial Land Use Restrictive Agreement (LURA) that the developer agreed upon with the state or local housing agency offering the LIHTC.