Opportunity Zones could provide lucrative options for farmers

There are nine areas in Northeast Arkansas that have been designated as Opportunity Zones and these places could provide a good place for farmers to invest their capital gains. Attorney Lisa Ferrell and tax specialist Alan Abston recently told members of the Agriculture Council of Arkansas that an effort is underway to revitalize these impoverished zones and investors could make a handsome profit in the process.

“It’s a unique way to bring back certain communities,” Ferrell said.

Gov. Asa Hutchinson approved 85 Opportunity Zones in Arkansas to provide tax incentives for private investment in low-income communities across the state. Out of the 337 qualified tracts, the state Economic Development Commission (AEDC) said those “OZs” nominated more than a year ago were chosen based on their potential for economic success and ability to attract investment.

Nationwide, the U.S. Treasury Department has approved a total of nearly 8,700 OZs across the U.S. It is estimated that potential capital eligible for reinvestment in the zones will generate $6.1 trillion in new economic development. Those selected as “qualified opportunity zones” retain that designation for a decade. Investors can defer tax on any prior gains until no later than Dec. 31, 2026, so long as the gain is reinvested in an IRS-approved fund organized as a corporation or partnership with the specific purpose of investing in OZ assets.

In Northeast Arkansas, nine zones were identified. Craighead and Mississippi counties each have three zones, while Crittenden County has two and Greene County has one.

The tax breaks for investing in businesses and projects within these poverty zones can be significant, Ferrell said. A five year investment will result in a 10% drop in the taxable gain meaning if $100 was invested, five years later capital gains would only be collected on $90. If the investment stretches to seven years, the rate is 15%. After 10 years, it becomes all profit with no tax, she added.

Capital gains can be acquired from a number of sources including real estate, stocks, mutual funds, businesses, and others.

Just about any type of business can qualify in an OZ as can property and equipment. The only businesses that don’t qualify on the front end are so-called “sin” businesses such as massage parlors, strip clubs, country clubs, golf courses, and others, Abston said.

The process works as follows. An investor invests capital gains into an OZ fund. These funds have to meet the OZ criteria to qualify. Once the OZ fund is established, the fund can then find business projects to invest.

OZ zones have been popular investment vehicles on the east and west coasts. The goal of these zones is to infuse money into these cash starved, economically depressed areas, Ferrell added.

Editor’s note: Talk Business & Politics’ Wes Brown contributed to this report.