State touts opportunity zones to investors

Before investors spend another dollar, Patricia Cannon wants them to ask this question first: Is it in an opportunity zone?

Ms. Cannon, director of Special Projects for Delaware, said the answer could change the future of their investments over the next decade.

She made the comment during an informational meeting in Milford Monday morning,

She joined Cover & Rossiter Principal Myunghee Geerts and Duane Morris, LLP Partner Brad Molotsky in presenting information about the federally-run opportunity zone program to about 30 interested investors, wealth advisors, attorneys and local leaders from inside the Milford Public Library.

Opportunity zones, she explained, are qualified census tracts which were nominated by the governor as a distressed part of the community and in need of development, or redevelopment. Through a federally run program, these tracts now have benefits attached to them in hopes more private investments will be made in these communities.

One such tract was chosen within the city of Milford on the northern end of town. It includes half of the Downtown Development District, adding to the possibilities of stackable benefits available to investors.

“The Governor’s office got really excited about this concept, this project, so, they asked me to go around and tell everybody about it,” she chuckled as she spoke to the group.

Although the state of Delaware and local municipalities do not run any aspect of the capital gains related program, Ms. Cannon said she would be more than willing to meet with potential investors to go over the details as they move forward in the process.

Mr. Molotsky explained the program further as the crowd listened intently to how Opportunity Zones and capital gains could benefit not just themselves, but the community around them.

Capital gains are profits from investments or real estate assets sold at a higher price than they were initially purchased. Some, or all, of the capital gains, realized after that sale, can then be placed in an investment fund to be used within 180 days to the betterment of the community.

Investment funds can be established by any entity, according to Ms. Cannon’s presentation to the group, as long as it follows guidelines set worth by the U.S. Department of the Treasury which runs the Opportunity Zone program.

Traditionally, capital gains would be taxed in that tax year. Investments made through the Opportunity Zone program would be different, Mr. Molotsky explained.

“It allows you to further your [capital] gains and reduce those gains. It allows you to sell and not pay gains, so that would be free – F-R-E-E. So, the first part is neat. The last part is really neat,” he said.

“The predicate, the starting point that starts our engine here is that we have to have capital gains. If you put regular dollars in our pocket into the program, it’s not that it’s deadly, you can do that, but it’s not going to help you. Only the capital gains get the benefit.”

From there, investors are invited to hold on to their investments for five to seven years before selling the business or real estate to another entity, allowing for a reduction in their capital gains to be 10-15 percent.

But time is short – the deadline to invest capital gains into Opportunity Zone projects is Dec. 31, 2019 if investors hope to realize the potential maximum benefit of the program.

“Say Paul and I have an investment in a basketball team and we have $1,000 in capital gains. We take that $1,000 and put it into an Opportunity Zone in Milford and we leave it there for five years. That $1,000 will be reduced by 10 percent, or $100, at the end of 2026 because we’ve been in for five years. We’ll only be paying [taxes] on the $900,” Mr. Molotsky explained.

He said an investment match to the capital gains used to make the fund in the Opportunity Zone must be made, as well, to encourage community growth.

“The nice part about this program is it’s flexible,” he said. “Whatever you put in that fund, you need to match with additional investments. If he puts in $5,000, he needs to put in another $5,001.

“The match does not need to be cash, he can borrow that from the bank. It doesn’t need to be equity, it can be debt, as well. We don’t want you to buy land and sit on it. We want you to improve the thing you’re buying.”

He added that some investors who are interested in holding on to their investments for ten years could possibly up the ante and not pay any taxes in 2027 on their capital gains associated with the program.

“It’s got to be gain, in the zone, for ten years, and willing to sell before end of 2027. Whatever he sells that for, 100 percent of the appreciated value is 100 percent federally capital gains tax-free – F-R-E-E,” he said.

In all cases, the investors must be willing to improve on their newfound businesses or properties while waiting to sell for quite some time.

Ted Lauzen from Delaware called the conversation “very necessary,” and “valuable.”

He added, “There’s a lot of value in good, confident New York money. But there’s a lot of value in good, confident Delaware money.”

From Milford, local artist Juan Cantu, also said the conversation had valuable information. He currently has an art studio on Walnut Street but has expressed hopes for expansion with ideas including an art store and services.

“I think it’s a great opportunity all around from investors to business owners and of course for Milford itself. It was great receiving first-hand information from the ‘movers and shakers’ involved,” he said. “Knowing there is help for someone as entrepreneurially inexperienced as I am makes a huge difference, and I will definitely be taking advantage of our Opportunity Zone since I now know that the old Carlisle firehall is a historic building and it falls within the Opportunity Zone.”

The hope of state leaders like Ms. Cannon is that investors like Mr. Cantu will be able to maximize their investment benefits by participating in not just the federally-run Opportunity Zone, but in other state and local opportunities.

These include the Downtown Development Districts, Strong Neighborhoods Housing Fund, Delaware’s Housing Development Fund, Angel Investor Tax Credit, Research & Development Tax Credit, New Business Facility Tax Credit, Brownfield Remediation Programs and Historic Tax Credit. Each have their own guidelines and fit different criteria, but can be stacked when the right project and investor comes along.

For more information on Opportunity Zone possibilities in Milford, visit

For other Opportunity Zones in Delaware, visit

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