The Southern Portion of The Estes Valley is a Designated Opportunity Zone.
OPPORTUNITY ZONES were created by the 2017 Tax Cuts and Jobs Act to spur economic development by providing tax benefits on eligible capital invested in a designated opportunity zone.
Opportunity Zones were enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act) to address uneven economic recovery and persistent lack of growth that have left many communities across the country behind. In the broadest sense, the newly enacted federal Opportunity Zone (OZ) program provides a federal tax incentive for investors to invest in low-income urban and rural communities through favorable treatment of reinvested capital gains and forgiveness of tax on new capital gains.
In Colorado, Opportunity Zones may help address a number of challenges:.
Promoting economic vitality in parts of the state that have not shared in the general prosperity over the past few years
Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages
Funding new infrastructure to support population and economic growth
Investing in startup businesses that have potential for rapid increases in scale and the ability to “export” outside the state of Colorado
Upgrading the capability of existing underutilized assets through capital improvement investments
Opportunity Zones - An Innovative Investment Vehicle
The Tax Reform bill created a new investment vehicle called Opportunity Funds. These Funds are intended to help low-income and underdeveloped communities, identified as Qualified Opportunity Zones. Although new and untested, these Funds can offer very valuable tax benefits to investors including:
Deferral of capital gains
Reduction of gain through a basis adjustment
Permanent gain exclusion from investing in an Opportunity Fund
These funds may have great appeal for both real estate developers and passive investors. Let's get into the details.
What Are the Tax Benefits of an Opportunity Fund Investment?
As mentioned in the introduction, there are several tax benefits of an Opportunity Fund:
An investor who realizes a capital gain has up to 180 days to reinvest the proceeds in an Opportunity Fund in order to defer having to pay current income tax on the capital gain.
If the investor holds their Opportunity Fund investment for at least 5 years, they can increase their cost basis by 10% of the deferred gain.
If held another 2 years (7 years in total), they can increase their basis by another 5% of the deferred gain.
If the investor still holds the Fund investment on December 31, 2026, they have to recognize the remaining 85% of the gain and pay tax with their 2026 tax return.
If the investor continues to hold the Fund investment beyond 2026 and for a minimum of 10 years total, then any gain on the appreciation of the Fund investment becomes tax-free.
Some commentators have referred to Opportunity Funds as an alternative to the traditional, 1031 or "like-kind" exchange.
What is an Opportunity Fund?
The Funds were created by the recent Tax Reform bill to spur real estate development and redevelopment in Qualified Opportunity Zones. To achieve Opportunity Fund status, the fund must invest at least 90% of its assets in property located within a Zone or Zones.
What Property Qualifies for an Opportunity Fund?
Most business property located in an Opportunity Zone will qualify. In fact, it might be easier to mention the property that doesn't qualify, which includes golf courses, country clubs, massage parlors, gambling facilities and stores that sell alcoholic beverages among others.
The use of the property must originate with the Fund, or the Fund can purchase existing property so long as the Fund "substantially improves" the property. In order to be a substantial improvement, the Fund must improve the property during the first 30 months of ownership by an amount equal to or in excess of the original cost basis. For example, if the Fund purchases land for $75,000, the Fund has 30 months to invest at least another $75,000, perhaps by constructing a building.
Where Do I Find an Opportunity Fund?
In the near term, finding an Opportunity Fund will be your biggest challenge. The US Treasury has been slow to issue rules and guidance, so there are many unanswered questions. This has dampened the creation of Opportunity Funds, which can either be privately developed by an individual seeking to defer a capital gain from a current sale of property, or managed by an investment group for investors seeking a diversified portfolio of property holdings.
An example of one such fund currently available is the Virtual Opportunity Zone Fund I, LLC. More info at: Virtua Opportunity Zone Fund I.
Please note this is not an investment recommendation, but rather a resource to learn more about a Fund in action.
Where are Zones Located Close to You?
In Northern Colorado, the entire Estes Park area as well as pockets in Loveland and Fort Collins have been designated. Colorado OEDIT provides an interactive map of Colorado Opportunity Zones.
More Information
Opportunity Zone Fact Sheet (Economic Innovation Group)
CDFA Opportunity Zone Resources (CDFA)
Opportunity Zone Overview (Enterprise Community)
Opportunity Zone Resource Center (Novogradac & Company)
Opportunity Zone Benefit Calculator (Fundrise)
Opportunity360 Data Tool (Enterprise Community)
+How Opportunity Zones Work
+Rules and Regulations
+Official Treasury Designations
+Opportunity Zones Resources
+Headlines
While we seek to share the best information available, Estes Park EDC does not specifically endorse or confirm the accuracy of any resources posted here. Estes Park EDC recommends you consult a tax or legal advisor concerning compliance with the Opportunity Zone requirements.