Investing in Miami Opportunity Zones can provide investors with a number of tax benefits. The most significant benefit is the deferral of capital gains taxes. When an investor sells an asset that has appreciated in value, they are typically required to pay capital gains taxes on the profits. However, if the investor reinvests those profits into an Opportunity Fund, they can defer paying those taxes until 2026.

In addition, investors can receive a step-up in basis on their original investment. This means that if the investor holds their investment in the Opportunity Fund for at least five years, they can receive a 10% reduction in the amount of capital gains taxes they owe. If the investor holds their investment for at least seven years, they can receive a 15% reduction in the amount of capital gains taxes they owe.

Finally, if the investor holds their investment in the Opportunity Fund for at least 10 years, they can receive a permanent exclusion from capital gains taxes on the profits from the sale of the Opportunity Fund investment.

Investing in Miami Opportunity Zones carries the same risks as any other real estate investment. These include market risk, tenant risk, and the risk of not being able to sell the property for a profit. Additionally, investors should be aware of the potential for increased taxes due to capital gains if the property is sold before the 10-year holding period is up. Investors should also be aware of the potential for increased competition in the market, as the Opportunity Zones program has incentivized many investors to enter the market. Finally, investors should be aware of the potential for increased regulation and scrutiny from local and federal governments.

Sources:

• A Guide to the Opportunity Zones Program for Commercial and Multifamily Real Estate Investors
• Miami Fully Affordable High-Rise Community Lands $61M Financing

For Miami Opportunity Zone development, borrowers will typically need to get commercial construction financing from a bank, which they then may wish to refinance into a fixed-rate CMBS loan, or, if the property is extremely high quality, a life company loan. For multifamily properties, borrowers may also consider Freddie Mac®, Fannie Mae®, and HUD multifamily loans, such as the HUD 221(d)(4) loan program. Additionally, Freddie Mac has a wide variety of financing products specifically designed to assist with this process, including Freddie Mac Bond Credit Enhancement with 4% LITHC and the Freddie Mac LIHTC Enhancement. Fannie Mae also offers LIHTC-focused products such as the Fannie Mae Credit Enhancement of Variable Rate Tax-Exempt Bonds (Index Bonds).

Investors in Miami Opportunity Zones may be eligible for tax incentives such as the Low Income Housing Tax Credit (LIHTC), the New Markets Tax Credit (NMTC), and the Historic Tax Credit (HTC).

The LIHTC program offers investors a dollar-for-dollar credit against their federal income tax liability. In 2016, the LIHTC program offered investors approximately $8 billion in tax credits. The NMTC program offers investors a 5-year, 39% tax credit for investing in commercial real estate in certain low-income census tracts. Most Opportunity Zones are also NMTC-qualified census tracts, so this overlap means the two tax incentive programs could fit nicely together. The Historic Tax Credit is designed to give a tax credit to investors who substantially rehabilitate qualified historic properties, typically those built before 1936.

For more information, please visit the following links:

• Low Income Housing Tax Credits and the Opportunity Zones Program
• Can the New Markets Tax Credit (NMTC) Program be Used in Opportunity Zones?
• Can the Historic Tax Credit (HTC) Program be Used in Opportunity Zones?

In order to invest in Miami Opportunity Zones, investors must have a minimum 10-year investment horizon in order to take full advantage of all of the tax benefits of Opportunity Fund investing. For commercial or multifamily real estate investors who wish to start their own Opportunity Fund, it’s generally recommended that they have at least $1 million in assets to invest. Additionally, all construction or rehabilitation projects must be completed within 30 months, and the business must do at least 70% of its business inside the Opportunity Zone in order to qualify. Properties must either be new construction, or if it is a rehabilitation project, the Opportunity Fund must invest equal or greater funds into property improvements than it did to initially purchase the property.

The Opportunity Zones Program is a federal program that provides tax incentives for investors to invest in low-income communities. In Miami, investors can finance development projects in Opportunity Zones through a variety of loan products, such as Freddie Mac Bond Credit Enhancement with 4% LIHTC, Freddie Mac LIHTC Enhancement, and Fannie Mae Credit Enhancement of Variable Rate Tax-Exempt Bonds (Index Bonds). Additionally, investors may wish to obtain a short-term bank construction loan, and then refinance into longer-term fixed-rate financing such as a 5-7 year CMBS loan or a Fannie Mae® or Freddie Mac® multifamily mortgage. They may also want to refinance with a HUD multifamily loan, such as the HUD 223(f) loan for property acquisitions and refinances.