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Can you make money and pay less taxes? With OZs, the answer is yes

Hank Hayes • Dec 11, 2019 at 5:30 PM

KINGSPORT — About 130 people filed into a MeadowView Marriott ballroom on Wednesday with one question in mind: How can I pay less taxes, invest in a project and make some money at the same time?

This was the third meeting in a year for investors to learn about Opportunity Zones (OZs) that were created as part of the 2017 Tax Cuts and Jobs Act to encourage investment in low-income and rural areas.

There are two OZs in Kingsport: the downtown area and a tract next to the Holston Army Ammunition Plant.

“We’re working to build those two zones,” said Kingsport Economic Development Director Jason Hudson, who is leading the OZs effort in Kingsport.

In Tennessee, there are 176 OZs across 75 counties, according to TNInvestCo Director Lamont Price. A web portal on those projects is at: https://oz.tnecd.com/.

Investors benefit three ways by placing their capital gains into a Qualified Opportunity Fund (QOF). The first benefit is a deferral of capital gains invested in a QOF. The second benefit is known as a “Step Up In Basis” which effectively reduces capital gains by 10 to 15% depending on how long the funds are in a QOF. The third benefit is a permanent exclusion from capital gains derived by investing in a QOF.

“Several investors come together on a project they were going to do already,” Hudson said of how OZs typically get started.

“The big thing around Opportunity Zones, in our estimation, is education and information,” Price noted. “One of the things we’re trying to push is, ‘Please tell someone. Your attorneys. Your bankers.’ ... We have capital. We just need projects."

One aspect, said tax attorney Chris Coffman, was that Congress wanted to provide investors with incentives to create projects within low-income census tracts.

“This is simply a way to attract additional capital to projects in your area,” Coffman pointed out.

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