The new Real Estate investor buzzword these days is “opportunity zones”. The frenzy is about the investor tax exemptions offered by investing in these zones. The US has already designated 8,700 zones across all the states, territories, and the District of Columbia.
It is estimated that there is approximately 6 Trillion in unrealized gains. The benefits of the opportunity zones offer investors the opportunity to defer their capital gains for the next 5, 7, or 10 years.
The break down goes as follows:
Investors who invest in opportunity zones and wait 5 years will get a 10% deferral gains realized. If an investor waits 7 years to realize their gain, there is a 15% deferral. And if an investor is willing to hold our for 10 years there is a 100% exemption on all the gains.
Now, this is where Puerto Rico’s opportunity zone sets itself apart from the other 8,700 opportunity zones out there. Act 74 The Tourism Development Act of Puerto Rico provides tax benefits to investors that invest in certain tourism activities in Puerto Rico (i.e. hotel administration, theme parks, golf courses, and other tourism activities).
Among the benefits, Act 74 provides for a tradeable tax credit in the amount of 50% of the tourism investment amount, up to 10% of the total cost of the project. If the investor cannot use the credit, it may sell it to another taxpayer.
Here is a Breakdown of Act 74 Credits:
Not all of Puerto Rico is in an opportunity zone and not all investors have gains to defer, so another little know vehicle for Investors who do not want to wait is known as Act 185 “Private Equity Funds.
Act 185 funds can be categorized by “Puerto Rico Private Equity Funds” and “Private Equity Funds”. The main difference being Puerto Rico Private Equity Funds are only for local investors and provide more tax incentive for residents who invest private equity. Act 74 can also be coupled for even more incentives to be realized. Click here for a full breakdown of Act 185. Another big difference between opportunity funds and Act 185 is that Act 185 investors must be accredited investors while anyone can invest in an opportunity zone. However, if you choose to invest in an opportunity fund then you must qualify as an accredited investor.
Each vehicle has its purpose and every investor should seek professional accounting and legal advice to help structure their investment.
Another advantage that sets Puerto Rico apart from other opportunity zones is its robust tourism industry, which is why Act 74 coupled with either of the investment vehicles mentioned above make Puerto Rico such an enticing investment.
If your an Accredited Investor and are thinking of investing in Puerto Rico, please feel free to contact us directly to help guide you along the way.
Luis A. del Mazo, Jr. and Tany Rodriguez