There are more than 8,700 opportunity zones in the nation; Pennsylvania has designated 300 opportunity zones. These are areas where private investments, under certain conditions, may be eligible for tax breaks to improve economically distressed communities.
Commercial builders and developers can take advantage of these opportunities as not only a chance to invest in commercial properties with less financial burden but also as a chance to improve low-income communities.
Builders who own and improve a property in a qualified opportunity zone (QOZ) may qualify for tax incentives and acquire less tax liability under the Tax Cuts and Jobs Act of 2017 of Section 179.
There are three levels of tax incentives:
- Initial tax deferral
- Partial elimination of capital gains tax
- Full elimination of capital gains tax
This provides a great opportunity for building owners to replace their commercial roofs, which can be classified as a qualifying expense.
Sec. 179 allowable expensing includes roof improvements to nonresidential real estate property. Moreover, you may be able to deduct the full purchase price of your property on your income tax rather than capitalizing the cost of the property.
States that have Qualified Opportunity Zones don’t have the ability to change the boundaries of the designated tracts.
The Pennsylvania Department of Community and Economic Development provides more detail on its QOZs in this webinar: Leveraging Opportunity Zones in Pennsylvania
If the property is held for more than 10 years, a commercial developer would face no capital gains on that qualified investment.
At the start of this year, investments in a QOZ qualify for a 10% reduction in capital gains taxes on the appreciation of the investment. Although 2020 investments in QOFs only receive a 10% reduction, there’s still an incentive to invest.
The Opportunity Zone program expires on Dec. 31, 2026.
PA map of zones:
Note: We’re roofing experts, not tax experts. So, consult your accountant or tax advisor to learn how the Opportunity Zones program and Qualified Opportunity Funds apply to your project. Then, equipped with guidance on these tax breaks inside QOZs, let’s work together to improve your commercial property or your new real estate development project.
Not only could a commercial roof installation improve your property, but our cool roof coatings can provide energy-efficiency to your building and add to its resale value.