How Local, State, and Federal Governments are
Ready to Pay for 25% of Your Home
Renaissance Zone and Opportunity Zone Tax Benefits Explained
by a non-accountant
Ownership at The Great Northern Block offers two substantial tax benefits through its designation as a Reconnaissance Zone Project and its inclusion in an Opportunity Zone. Together, these incentives could cover 25% of the cost of your home.
Really!
On October 7th, 2019, the Fargo City Commission designated The Great Northern Block as a Renaissance Zone Project. Upon completion of your home, you will enjoy a 5-year program to abate property taxes and credit State of North Dakota income taxes. Current property taxes in the city of Fargo proper run just over 1.3% of assessed value each year. This will exceed 6.5% of the value of your home over 5 years. The state income tax credit will waive up to $80,000 in state taxes over an 8-year period. Most won't save $10,000/year in state taxes, but a family making $200,000/year will likely save about $4500/year or $36,000 over the 8-year period. That's over 5% of a $700,000 condo. Along with the property tax savings, it's 12%.
The Opportunity Zone tax incentive is a federal benefit that can amount to even more savings. It is designed to shield investors from capital gains when they invest in an Opportunity Zone. It has three components and you can take a piece of every one: Deferral, Basis Step-up, and Exclusion of Gains.
If you purchase your condo with money subject to capital gains, the tax on those gains are deferred until 2026 and, in the years 2026 and 2028 you’re allowed to step up the basis of the asset that provided those gains. (10% and 5% respectively) If you used funds subject to capital gains to pay $500,000 for your condo, those deferrals and basis step-ups would save you some $50,000 to $60,000 in taxes and interest over those 7 years. Furthermore, if you hold the condo for at least 10 years, then any gains earned on your condo are excluded from gains taxes for ever. That could save you tens of thousands of dollars more when you sell your condo.
Of course, there are a lot of variables here, especially in the Opportunity Zone benefits, but it's pretty safe to say that everyone will save at least 12% of their condo purchase price. Savings of 15% to 18% are probably typical and some could save as much as 25% to 30% of the purchase price if they hold their condo for at least 10 years.
Talk to your accountant.
And read more here < FARGO RENAISSANCE ZONE > and here < OPPORTUNITY ZONES EXPLAINED >