Where Are The Opportunity Zones in Nashville?
With the new tax plan, the Tax Cuts and Jobs Act of 2017, came with a multitude of new tax codes.
One of which implemented the plan for Opportunity Zones.
They are community development tools incentivizing investors to invest long-term capital in low-income communities.
What does this mean for Nashville?
Well, the state of Tennessee has 176 opportunity zones, Davidson County has 18.
That’s means much of Davidson County is covered under the incentive program, and there are a number of incentives for investors to place capital in these designated locations.
What Is An Opportunity Zone?
The IRS defines an opportunity zone as an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
Each state nominated certain localities within its domain, which qualifies those zones as Opportunity Zones if that nomination has been certified by the Secretary of the U.S. Treasury.
Opportunity Zones were intended to be an economic development tool.
These tax benefits are designed encourage investment in development and job creation within distressed communities.
Opportunity zone investors may defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.
If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.
If held for more than 7 years, the 10% becomes 15%.
If the Opportunity Zone investor holds the investment in the Opportunity Fund for at least 10 years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
What does this all mean in layman’s terms?
Essentially, you could 1031 Exchange money out of stocks, bonds, or other real estate and place it into a Qualified Opportunity Fund. After 10 years, your basis is reset.
No longer will you have to kick the can down the road on a 1031 Exchange and pay your taxes later.
With an Opportunity Zone, you can completely wipe your capital gains away.
Why Would The Government Provide Opportunity Zone Incentives?
Opportunity Zones are clearly intended to provide a long-term benefit.
Why is that, though?
Well, in order for the money placed into a distressed community, it would have to sit there for a bit and be effective.
The government doesn’t want fly-by-night developers coming in and taking advantage of these distressed communities.
The benefits are structured so that Opportunity Zone investors are truly investing within that community in order to make it better for everyone.
Opportunity Zones in Nashville
Davidson County has a number of qualified Opportunity Zones - primarily around the city’s core.
And some of those zones might surprise you.
Such as Metro Center, Wedgewood Houston, and even Five Points in East Nashville.
However, some of these areas are truly distressed and haven’t seen the economic development that other parts of the city have.
The Murfreesboro Pike corridor to the southeast, the eastern bank of the Cumberland River, and Northwest Nashville certainly have outstanding potential.
These communities are far too close to Nashville’s booming urban core to not provide a solid investment opportunity - even if they weren’t in Nashville’s Opportunity Zones.
Should You Invest in An Opportunity Zone in Nashville?
Unfortunately, only time will tell if Opportunity Zones will truly provide investors with the returns promised by the government.
It seems that every week the government is changing what qualifies for an OZ, how the tax benefits work, and how much capital needs to be invested in order to qualify.
So, I wouldn’t recommend investing in an Opportunity Zone just to invest in one and hope for the benefits.
In fact, most of the Opportunity Zone properties that I’ve seen hit the market for sale are listed at a premium, essentially defeating the entire purpose of investing in those sites.
I think the best case scenario is if you’re purchasing a property that already makes sense and it just so happens to be in an Opportunity Zone.