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Are Opportunity Zone deals worth the risk?

Different initiatives have been designed by the federal government to incentivize private investment in low-income communities. Today, it is Opportunity Zones that are located in a few areas here in Austin, but an estimated 57 percent across the country would qualify. These types of new markets programs have been around for a while but have gained new relevance in the new Tax Cuts and Jobs act of 2017.

These Opportunity Zones are designed to reward long-term investment in the community by levying taxes on just 85 percent of the original investment as well as proceeds for seven years. If the investment is held 10 or more years, investors are only responsible for paying taxes on the original investment. These measures can make for cost effective options for real estate investing.

The pros

There are some advantages to the Opportunity Zones. Notably, experts believe there is potential for $6 trillion in unrealized capital gains bounty. While it will likely take years to flourish, investors may benefit from parking their money in Opportunity Zones as interest rates rise.

The cons

Because of the nature of the neighborhood, real estate and local government, it may be risky to try to do business in one of these areas. It may be riskier than staying in the stock market. As is usually the case with managing a portfolio, it is important to have these risky Opportunity Zone investments with their tax protection against capital gains balanced by other interests.

Smart and agile investment

Many of the details of this initiative are still unfolding. Investors are generally advised to find worthwhile real estate projects that show potential, but they need to also be aware of changes in the guidelines as well as the pulse of the marketplace in these areas.

An attorney with real estate background here in Austin can be a huge asset to individuals and groups who are looking at taking advantage of Opportunity Zones. Time will tell whether investment decisions are good or bad, but working with the right attorney can help investors explore every option and consider each risk.

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William T. Peckham
1104 Nueces Street, Suite 104
Austin, TX 78701
Phone: 512-487-7604
Fax: 512-478-1790
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