Colorado real estate investors are being met with a stupendous investment opportunity with the introduction of the qualified opportunity zones. There are currently 126 opportunity zones with 37 of them being in the Denver metro area. Recently, these opportunity zones have been making headlines and for good reason. In the 2017 Federal Tax Reform laws, there was a development incentive where opportunity zones were added to the tax code by the Tax Cuts and Jobs Act.
What this means to investors is that they can defer any capital gains tax liability through Dec. 31, 2026. After five years, that tax liability is reduced by 10% and if it is held for seven years, it is reduced by 15%. According to the IRS after 10 or more years, the investor is eligible for an increase in basis of the Qualified Opportunity Zones (QOF) investment equal to its fair market value on the date that the QOF investment is sold or exchanged. So if this act was passed in 2017 then why is it just now making so many headlines? Well any gains that were in a fund that required a K1 tax form that were generated in 2018 were given 180 days from Jan. 1, 2019, to invest in a qualified opportunity zone. Therefore, 180 days from Jan 1 this year is June 28, 2019, which is why we are seeing a lot of investors investing in projects in opportunity zones such as the Hines and Cresset, 10-story apartment building in the RiNo district. As a result of these tax incentives, investors and developers have more money to invest.
Another question you might have is how were the Qualified Opportunity Zones selected. The zones that were chosen had an average income of 80% of the state’s median family income or lower. 60% of those zones were put in rural areas in order to drive development in places that haven’t experienced the prosperity of Denver real estate investment.
Here is a photo from the County and City of Denver and Bureau of Land Management of a few of the qualified zones (highlighted in yellow) in Colorado: