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Michigan Opportunity Zones Michigan Opportunity Zones

Michigan Opportunity Zones - PowerPoint Presentation

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Michigan Opportunity Zones - PPT Presentation

2018 Tax Cut and Jobs Act Economic development toolincentive not a program 1 st new national community investment incentive in over 15 years Promote economic recovery by driving longterm investment capital to rural and lowincome urban communities ID: 804703

opportunity tax https michigan tax opportunity michigan https capital investment housing development source www incentive economic novogradac amp company

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Presentation Transcript

Slide1

Michigan Opportunity Zones

Slide2

2018 Tax Cut and Jobs Act

Economic development tool/incentive, not a program

1

st

new national community investment incentive in over 15 years

Promote economic recovery by driving long-term investment capital to rural and low-income urban communities

Uses tax incentives to encourage private investment in impact funds that connect investors with community investing opportunities

Governor’s asked to identify eligible census tracts

Slide3

U.S. Stats

$6.1 Trillion in unrealized capital gains

8,761 qualified census tracts across all states, territories, D.C.

35M people – 24M jobs – 1.6M businesses

Average poverty rate – 31% (well above the 20% eligibility threshold)

Average median family income – 59% of its area median (compared to the 80% eligibility threshold)OZs split between 38.2% urban – 39.6% rural – 22.2% suburban

Slide4

U.S. 8,761 OZs

Source: Economic Innovation Group, www.eig.org

Slide5

Michigan Stats

288 OZs (US 8,761)

65 rural census tracts, or 23% (US 39.6%)

Average poverty rate – 32.1% (US 31%)

Average median family income – 60.3% (US 59%)

Average unemployment rate – 16.6% (US 14.4%)

Slide6

Michigan’s 288 OZs

Slide7

Detroit OZs

Slide8

https://michigan.gov/opportunityzones

Slide9

Opportunity Zones

Source: Novogradac & Company

Slide10

Three Tax Incentive Benefits

Gain Deferral

Partial forgiveness

Forgiveness of additional gains

Slide11

Tax Deferral –Partial Forgiveness – Forgiveness of Additional Gains

Capital gain tax deferral ends either by early sale or by December 31, 2026

Held for 5 years

Basis increased by 10% of the deferred gain, up to 90% taxed

Held for 7 years

Basis increased by an additional 5% of the deferred gain, up to 85% taxedHeld for 10 yearsBasis is equal to fair Market Value

Forgiveness of gains on appreciation of investment

Requires an election

Slide12

Sample Investment

Source: Novogradac & Company

Slide13

Sample Investment

Source: Novogradac & Company

Slide14

OZ Incremental Benefit

Source: Novogradac & Company

Slide15

Economic Development Examples

Business infrastructure real estate funds

Industrial

Retail

Mixed-use

Transit-Oriented DevelopmentVenture capital fundsSeed state investmentsSeries A investments

Slide16

Economic Development Examples - Continued

Operating business private equity

Equity recapitalizations

Growth capital investments

Enhancement for other federal tax credit transaction

New Market Tax CreditsHistoric Tax CreditsLow-Income Housing Tax Credits

Slide17

Affordable Housing Examples

Pairing with LIHTC or the HTC

Effective for providing housing for families at or under 60% AMI

Focus on Workforce Housing

Providing housing for families at 80-100% AMI

Anticipate a 10-year investmentNo ongoing compliance regulations unless required through local funding or zoningAbility to attract high net worth individuals or corporations as investors

Slide18

No “Sin” Businesses

Private or commercial golf course

Country club

Massage parlor

Hot tub facility

Suntan facilityRacetrackGambling facilityLiquor storeFarm

Slide19

Qualified Opportunity Fund

An investment vehicle organized as a corporation or a partnership for the purpose of investing in Qualified Opportunity Zone Property

Slide20

Source: Novogradac & Company

Qualified OF – Assets Test

Slide21

Certification Process

An eligible taxpayer self-certifies to become a certified qualified opportunity fund

No approval or action by the IRS is required

A taxpayer merely completes a form (to be released Fall 2018) and attaches that form to the taxpayer’s federal income tax return for the taxable year

The return must be filed timely, taking extensions into account

Slide22

Qualified OF – Noncompliance Penalty

Source: Novogradac & Company

Slide23

State’s Role

Official role was for Governor’s to identify eligible census tracts, no other role

BUT, here is what we are doing…

Opportunity Zone Eco-System

Regional Prosperity Initiative

9 State Agency Collaboration (META)SOM Regional Prosperity Field TeamsSense of Place Council (MML, MAP, SBAM, MAR, etc.)

Slide24

State’s Role - Continued

Michigan Opportunity Zone Webpage

Michigan Opportunity Zone Referral form

Interactive Map

Sign-up for updates

ResourcesWebinarsIncentivize Best Projects

Slide25

Key Points - Investors

Tax incentive is most valuable for 10 year investments in appreciating assets

Six months to invest after realizing a capital gain

Another six months to deploy 90% of capital in Zones

Capital is required to be an equity investment – loans from investors are not eligible for the tax incentive

Slide26

Key Points - Funds

All capital must flow through an Opportunity Fund to be eligible for the tax incentive

Funds are self-certified via an IRS tax form

Fund must be established for the purpose of investing in Opportunity Zones

90% of fund assets must be invested in Zones to maximize the tax incentive

Slide27

Key Points – Eligible Investments

Must be equity investments

Real estate investments must include substantial rehabilitation – doubling basis within 30 months

“Sin businesses” are not eligible

Other requirements include property use in “active conduct of business” and limits on assets held in cash

Slide28

Key Points – State Role

Eco-system

Connector

Referral to state resources

Share information

Incentivize best projects

Slide29

Key Resources

Michigan State Housing Development Authority OZ Webpage -

https://michigan.gov/opportunityzones

Economic Innovation Group -

https://eig.org/opportunityzones

Smart Growth America – LOCUS OZ Navigator -

https://smartgrowthamerica.org/program/locus/opportunity-zones/

Enterprise – 360 Opportunity -

https://www.enterprisecommunity.org/opportunity360/opportunity-zone-eligibility-tool

Council of Development Finance Agencies -

https://www.cdfa.net/cdfa/cdfaweb.nsf/pages/events.html

Novogradac & Company LLP -

https://www.cdfa.net/cdfa/cdfaweb.nsf/pages/events.html

Michigan Land Bank -

https://www.michigan.gov/landbank/0,3190,7-298-51746---,00.html

Michigan Economic Development Corporation – Community Development -

https://www.miplace.org/

Slide30

Thank you!

For more information, contact:

Gary Heidel, Chief Housing Investment Officer

Ph: 517-241-7455

Email:

heidelg@michigan.gov

Website:

www.michigan.gov/mshda

or

-

https://michigan.gov/opportunityzones