When circumstances permit, we structure our acquisitions in such a way that allows investors to take advantage of one or more of the following tax benefits:
Tax benefits of opportunity zone investments
- A temporary deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2016.
- A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
- A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
New Market tax credits
- The NMTC Program attracts private capital into low-income communities by permitting individual and corporate investors to receive tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities (CDEs).
- The credit totals 39% of the original investment amount and is claimed over a period of 7 years.
- NMTC Program applicants must be certified as CDEs by the Community Development Financial Institutions Fund (CDFI).
- CDE Certification is intended for community development financing intermediaries.
Tax Benefits of Section 1202
- Section 1202, also known as the Small Business Stock Gains Exclusion, is an excerpt of the International Revenue Code (IRC) that grants capital gains from Small Business Stock to be eliminated from federal tax.
- Section 1202 incentivizes non-corporate investors to invest in small businesses.
- Applies to Qualified Small Business Stock (QSBS) if held for more than 5 years (IRC Sec. 1202).
- Section 1202 allows for 100% exclusion of capital gains if the QSBS was acquired after September 27, 2010.
- The issuing corporation had $50 million or less in assets on the date of stock issue or immediately after.
State tax benefits-qualified Wisconsin business
- Investors in Qualified Wisconsin Businesses are eligible for deferral or exclusion of long-term capital gain for Wisconsin residents (Wis. Stats. Sec. 71.05(25) and Sec. 71.05(26)).
Borgman Capital does not provide tax, legal, or accounting advice. Investors should consult their own tax, legal, and accounting advisors before engaging in any transaction. Furthermore, tax laws or a company's circumstances may change during the hold period such that these tax benefits might not be available at exit.
“The hardest thing in the world to understand is the income tax.” - Albert Einstein