Opportunity Zone – Why?
Increase investment in the communities that need it the most. Impact Investing is important for low-income communities to grow and thrive along with the rest of the country. In theory, aligning private investment with low income communities promotes creation of new jobs and housing opportunities along with a general increase in wages.
For potential investors, we encourage you to utilize our OZ Calculator. This spreadsheet compares two investment scenarios for an investor with capital gains. Scenario One: Reinvest capital gains into an Opportunity Zone Fund. Scenario Two: Pay taxes on capital gains and re-invest the proceeds in an alternative investment.
At first glance the calculator may seem like a lot, but only numbers in blue need to be toggled by the user. Let’s look at the first part of the calculator and go over the parameters.
This will create the total capital gains tax rate effective. You may wish to consult your CPA or tax attorney as rates vary by state and income levels.
For the cross comparison of the OZ investment to the alternative investment, yearly asset appreciation assumption must be made. In the above scenario, 7 % is assumed on the alternative since that is what an Investor in W&A typically returns. For the OZ asset a more conservative estimate is recommended due to the nature of impact investing.
Income parameters are important to measure the net value each investment vehicle provides. Since most OZ funds invest in business property as the underlying assets, rental income on yearly basis must be assumed. Also, an increase in rental income should be included to account for yearly growth.
The alternative investment is typically bonds, equity, some real estate, and niche asset classes that return a yearly dividend to the investor. Dividends are reinvested into the alternative investment, but taxes are paid in year revenue is recognized.
This calculator is solely for informational purposes and should not be construed as tax or legal advice. It is only intended to provide education about the financial industry. Results and future estimates of back-tested performance are hypothetical. Investing in opportunity zones are extremely limited and not suitable for all investors as they may face heightened risk due to the illiquid nature of investment opportunities available through the Tax Cuts and Jobs Act of 2017 (TCJA). To determine whether investing in opportunity zones is appropriate for you, we urge you to please consult your financial advisor prior to investing.
Wambolt & Associates is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Wambolt & Associates and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Wambolt & Associates unless a client service agreement is in place.