Opportunity Zones in Florida: What You Need to Know
In 2018, Governor Rick Scott announced the designation of 427 Qualified Opportunity Zones (QOZs) througout the state of Florida. These O-Zones are spread througout the state, however, they are concentrated in some of the state’s most populous areas; 68 Opportunity Zones are in the state’s most heavily populated county, Miami-Dade, while 34 Opportunity Zones are located in Duval County, home of Jacksonville, Florida’s most populous city. There are approximately 350,000 commercial properties located inside the state’s O-Zones, about 12% of all commercial properties in the state.
- Opportunity Fund Investing in Florida: The Basics
- What are the Opportunity Fund Tax Benefits in Florida?
- The Most Promising Opportunity Zone Areas in Florida
- Opportunity Funds in Florida May Be Able to Use The Low-Income Housing Tax Credit (LIHTC) Program for Affordable Housing
- Related Questions
- Get Financing
Opportunity Fund Investing in Florida: The Basics
In 2018, Governor Rick Scott announced the designation of 427 Qualified Opportunity Zones (QOZs) throughout the state of Florida. These O-Zones are spread across out the state, however, they are concentrated in some of the state’s most populous areas; 68 Opportunity Zones are in the state’s most heavily populated county, Miami-Dade, while 34 Opportunity Zones are located in Duval County, home of Jacksonville, Florida’s most populous city. There are approximately 350,000 commercial properties located inside the state’s O-Zones, about 12% of all commercial properties in the state.
What are the Opportunity Fund Tax Benefits in Florida?
The Opportunity Zones program offers investors a way to defer their federal capital gains taxes by investing in Opportunity Funds, specialized investment vehicles which must place at least 90% of their assets in eligible businesses or real estate inside a Qualified Opportunity Zone (QOZ). In order to be eligible for investment, a company must do at least 50% of its business inside a QOZ. And, for a property to be eligible, it must either be new construction, or the Opportunity Fund must invest more into rehabilitating the property than it invested to purchase the property in the first place.
Opportunity fund investors who invest within 180 days of selling an asset can defer paying capital gains taxes until April 2027. If they keep their investment for at least 10 years, they can enjoy a 15% discount on their capital gains tax liability, as well as paying zero capital gains taxes on any appreciation their investment makes after it enters the Opportunity Fund.
The Most Promising Opportunity Zone Areas in Florida
As we just mentioned, Miami-Dade County has an impressive 68 designated O-Zones within its borders, consisting of 27,000 properties, about 9,000 of which are multifamily properties. Since several major tech companies have recently opened offices in the Miami area, demand is likely to be rising quickly, which could make the area an excellent location for Opportunity Funds looking to invest in rehabilitating apartment complexes. Likewise, Orlando, another fast-growing area, has 6,000 commercial properties located in Opportunity Zones. And Tampa, with over 10,000 commercial properties inside Opportunity Zones, is also an area ripe with potential for Opportunity Fund investment.
Opportunity Funds in Florida May Be Able to Use The Low-Income Housing Tax Credit (LIHTC) Program for Affordable Housing
The Low-Income Housing Tax Credit (LIHTC) program is the nation’s primary tax incentive program to encourage the development of affordable housing. Developers compete for a limited number of credits, which they can sell to investors, who will receive a 10-year dollar-for-dollar credit against their federal income taxes. In order to qualify for the LIHTC, a property generally must pass the “20/50 test,” meaning that they have allocated 20% of the units for borrowers making less than or equal to 20% of the Area Median Income (AMI), a statistic published by the Department of Housing and Urban Development (HUD). Alternatively, they may be required to pass the 40/60 test, in which they allocate 40% of the units to borrowers making at least 60% of the AMI.
The developer must generally keep the property for a minimum of 15-years, after which they can sell it. However, in many cases, the new owner must keep the property affordable for a longer period of time, all depending on the initial Land Use Restrictive Agreement (LURA) that the developer agreed upon with the state or local housing agency offering the LIHTC.
Related Questions
What are Opportunity Zones in Florida?
The Opportunity Zones Program is a program created by the Tax Cuts and Jobs Act of 2017 that allows investors to re-invest their unrealized capital gains into low-income areas in order to help revitalize them. In order to qualify, potential Opportunity Zones must have a minimum poverty rate of 20%, as well as a median income of no more than 80% of the statewide median family income (for rural areas), or no more than the greater of 80% of the statewide median family income or 80% of the median family income for that metropolitan area. In Florida, the Florida Department of Economic Opportunity has designated a total of 8 Opportunity Zones.
What are the benefits of investing in Opportunity Zones in Florida?
Investing in Opportunity Zones in Florida can provide investors with three main tax benefits. First, investors may defer capital gains taxes until they sell their investment or by December 31, 2026, whichever occurs first. In addition, investors who keep their money in an Opportunity Fund for at least 5 years will receive a 10% reduction of their capital gains tax liability, while those who keep their investment in the fund for at least 7 years will receive an additional 5% discount, for a total 15% capital gains tax discount. Lastly, investors who keep their money in an Opportunity Fund for at least 10 years will not have to pay any capital gains taxes on any additional appreciation their investment has experienced since it was placed in the fund.
For more information, please see Commercial Real Estate Loans' Opportunity Zones page and Multifamily Loans' A Guide to the Opportunity Zones Program.
What types of investments qualify for Opportunity Zones in Florida?
In Florida, investments in office, retail, and industrial properties typically require commercial construction financing from a bank, which can then be refinanced into a fixed-rate CMBS loan, or, if the property is of high quality, a life company loan. For multifamily properties, borrowers have the option of commercial real estate loans from Freddie Mac®, Fannie Mae®, and HUD multifamily loans. For properties utilizing the Low-Income Housing Tax Credit (LIHTC) program, Freddie Mac has a variety of financing products specifically designed to assist with this process, including Freddie Mac Bond Credit Enhancement with 4% LITHC and the Freddie Mac LIHTC Enhancement. Fannie Mae also offers LIHTC-focused products such as the Fannie Mae Credit Enhancement of Variable Rate Tax-Exempt Bonds (Index Bonds).
What are the tax incentives for investing in Opportunity Zones in Florida?
Investors who invest in Opportunity Zones in Florida can qualify for tax incentives. If an investor keeps their money in an Opportunity Fund for at least 5 years prior to December 31, 2026, they will reduce their deferred capital gains tax liability by 10%. If they keep funds in for seven years before that date, they can reduce their tax bill by 15%. In some cases, investors may even reduce their tax liability to zero on any profits they generated by investing in an Opportunity Fund, though they will need to hold their investment in the fund for at least 10 years in order to qualify.
Source: A Guide to the Opportunity Zones Program for Commercial and Multifamily Real Estate Investors
How do I find an Opportunity Zone in Florida?
You can find Opportunity Zones in Florida by searching the U.S. Department of the Treasury's Opportunity Zone Map. This map allows you to search for Opportunity Zones by state, county, or zip code. You can also find a list of Opportunity Zones in Florida on the Florida Department of Economic Opportunity's website.
What are the risks associated with investing in Opportunity Zones in Florida?
Investing in Opportunity Zones in Florida carries the same risks as investing in any other real estate venture. These risks include market volatility, tenant turnover, and the potential for natural disasters. Additionally, investors should be aware that the tax benefits associated with Opportunity Zones are subject to change, and may not be as beneficial as initially thought. For example, the IRS recently proposed regulations that would limit the amount of capital gains that can be deferred through Opportunity Zone investments.
For commercial or multifamily real estate investors who wish to start their own Opportunity Fund, it’s generally recommended that they have at least $1 million in assets to invest. Otherwise, the operational and administrative costs of opening a fund may negate the potential tax benefits. Source
- Opportunity Fund Investing in Florida: The Basics
- What are the Opportunity Fund Tax Benefits in Florida?
- The Most Promising Opportunity Zone Areas in Florida
- Opportunity Funds in Florida May Be Able to Use The Low-Income Housing Tax Credit (LIHTC) Program for Affordable Housing
- Related Questions
- Get Financing