Cannabis Knowledge & Insights

Opportunity Zone Credits: Cannabis Real Estate Investments in Qualified Opportunity Zones

In this video and article, our team will discuss opportunity zone credits, what they are, and their implications for cannabis real estate investments in qualified opportunity zones.

Hey there Jim breese here from green growth CPAs and today we’re going to talk about opportunities own credits from the 2017 tax cuts and Jobs Act there was this new opportunity for real estate investments in ways to lower your tax burden so we’re gonna talk about the actual credits and then how canvas businesses can actually take advantage of these credits and mitigate any impact from 280e so let’s hop right into today’s presentation hey there Jim breeze here from green growth CPAs and thank you for taking the time to check out our video about opportunities own credits so opportunity zones are some of the best investments available for anyone with the funds seeking to lower their tax responsibilities these are praised by some as the more socially conscious form of real estate investing because opportunity zones offer a way to do good while saving money on your taxes so today we’re gonna dive into what you need to know about IRS designated opportunity zones but before we do I need to let you know that the information contained in this presentation is meant for guidance purposes only in not as professional legal or tax advice and further it does not give any personalized legal tax investment or any business advice in general so with that out of the way let’s review what the topics are that we’ll cover today so first we’re gonna talk about what opportunities owns actually are then discuss the benefits of opportunities own credit investments and then we’ll go through some investment examples and then discuss how to 8ee an opportunity zone credits can work with each other and how you can take advantage of these as a 280e business so just a little background on what an opportunity zone actually is so an opportunity zone is defined by the IRS as an economically distressed community where new investments under certain conditions may be eligible for preferential tax treatment these areas have been nominated by the state and then certified by the US Secretary of the Treasury Opportunity Zones were created by the 2017 tax cuts and Jobs Act and under this legislation the zones are meant to increase economic development and job creation in areas that were you know traditionally underserved an area can qualify to be nominated as an opportunity zone by two ways so the poverty rate has to be at least 20% or the median family income is no greater than 80% of those of their surrounding areas so currently there are 8700 designated opportunity zones around the entire country and once an area receives that class vacation it will continue to be an opportunity zone for ten years so let’s discuss some of the benefits to opportunity zone credits and what investors need to know about these opportunities zones so the government created opportunities owns to incentivize investments in areas that need rehabilitation they need jobs and they need that cash injection to make them vital again there are some great tax benefits to cannabis operators who bring their business to opportunity zones and we’ll discuss how this works a little bit later in the presentation but let’s go over some of the benefits here so the IRS offers investors what they call qualified opportunity funds and this option allows investors to put their existing assets with accumulated capital gains into a private fund but there’s a catch okay so at least 90% of the funds capital must be invested into an opportunity zone so in return for doing that the IRS has decreed that qualified Opportunity funds get the following tax benefits so there’s four of them so first investors can defer tax on prior gains invested into the qualified Opportunity Fund until the date of which the fund is actually sold or December 30th 2026 which ever is earlier then secondly if the qualified Opportunity Fund investment is held for more than five years then there’s a 10% basis increase on the original investment which means that that will lower your tax burden on that original investment if you’ve held it for seven plus years that 10% basis increase becomes 15% which is the third benefit and then if the qualified Opportunity Fund investment is held for at least ten years then you the investor pays no capital gains from those investments that you made with the qualified Opportunity Fund that’s an amazing amazing benefit that who wouldn’t want to have great capital gains and then not be taxed on it and these are really really great for investors that want to get into real estate it’s a very savvy way to get into the industry where you actually purchase a building and then lease it out to tenants especially because there’s cash flow built into that investment so next let’s look over to opportunity’s own investment examples I’m gonna go over just two strategies depending on if you’ve got investments already or if you’re sitting on liquid cash so on the first option imagine that you just sold stock you sold your business or you sold a real estate property right and the result is say 1 million dollars in capital that you get so upon the sale of those assets you would technically be taxed on whatever your capital gain is there so instead reinvest that money into real estate property located in an opportunity zone so there’s a few benefits you’ll benefit from the deferred taxation on that original gain and secondly if you hold that investment in the qualified Opportunity Fund for 5 7 or 10 years you can partially or completely avoid taxation plus any gain a new appreciation in that property you purchase you don’t have to pay capital gains tax on that as well now the second option is that imagine you’re sitting on a pile of cash who wouldn’t like to have that happen but there are some people out there that are very liquid in cash cash heavy and say you’re looking to invest ok what we would suggest is that you look for an investment in an opportunity zone in any gain due to appreciation of that property can be avoided by the rules we talked about you know previously outlined in this video so it’s a win-win for you and your business right so the real estate appreciation on that qualified Opportunity Fund you’ll have no capital gains tax on that so what you’ll notice if you’re in the cannabis industry a lot of the places that are qualified as green zones right where cannabis businesses can actually operate is usually on the fringe it’s usually in places that they don’t want a lot of foot traffic at least for like the micro businesses you know retail maybe in these other areas that have higher foot traffic but you’ll see a significant portion of manufacturing distribution and cultivation is outside of these high-traffic areas which in many cases becomes one of those opportunities owned areas right there’s a lot of poverty in these areas there’s a lot of low median income in those areas but at any rate these properties that can potentially be licensed are more than likely going to be opportunities owned areas so it’s very very smart for you to think about again pulling your cash out from other investments in power laying it into a qualified Opportunity Fund so let’s now discuss 280e and opportunity zone credits as I said well you think about all right you know these cannabis businesses are potentially are more than likely going to be in these opportunities zones how do we make that work and how do we benefit from this as well as mitigate any 280e impact so technically any property in an opportunity zone is going to qualify for this opportunity’s own credit but 280e excludes any credits or deductions that are not cost of goods sold for cannabis businesses to take advantage of so directly a cannabis business cannot participate and get this opportunities own credit so what you should consider is that purchase the real estate in an opportunity zone but then place that real estate in a legal entity that’s separate from a 280e business and then lease the property back to the 280e business what this will allow you to do is take advantage of those opportunities own credits and help mitigate any impact from 280e on your opportunities own fund investment so that’s a little color in context to opportunities own credits if you want help with understanding how you as an investor or a cannabis company can take advantage of opportunities own credit investments please reach out to green growth CPAs by visiting green growth CPAs comm or give us a call at eight hundred 676 so they don’t become too impacted by 280e regulations and you can take as much advantage of increasing your basis for those prior investments that your parlaying into this qualified opportunity fund again you can reach out to us at green growth CPAs comm or give us a call at eight hundred 676 of value and some understanding have a great day and we’ll talk to you soon