Is 2022 the Right Time for Your Business to Get in the Zone?
As our region continues to navigate the COVID-19 pandemic, there appears to be some light at the end of the tunnel. The new year may be the perfect time to consider tax and loan programs designed to assist businesses in need of a change or looking to expand.
Federal Opportunity Zones
The City of Erie contains eight distinct areas identified as federal Opportunity Zones to spur investment into economically distressed areas by providing tax incentives on capital gains realized from Qualified Opportunity Fund (QOF) investments. QOFs are owned by an entity that holds at least 90 percent of its assets as property within an Opportunity Zone and has self-certified as such with the Internal Revenue Service.
QOF investors may defer any capital gains until December 31, 2026, or the date the investment is sold, whichever comes first. Further, QOF investments allow an escalating increase in basis on the capital gains: 10-percent increase if you hold the fund for at least 5 years, 15 percent up to 7 years, and all the way up to fair market value if you hold for 10 years or more. This step-up in basis means you can exclude from your taxable income up to 15 percent of the value of your reinvested capital gains when you eventually sell.
Enterprise Zone Revolving Loan Fund (EZRLF)
The City of Erie implemented the EZRLF to assist local businesses and encourage economic development by providing access to "gap" funding the delta between available bank financing and a company's equity. The program covers a large portion of Erie and helps qualified businesses by matching up to 50 percent of the cost of a project ($500,000 maximum) through a low-interest loan, currently 3 percent to 4 percent. Loans can be used to purchase real estate or fund a renovation or construction project with a 15-year repayment term, or to buy used or new equipment with a 5- or 7-year term, respectively. This injection of capital could enable a small or struggling business to grow or generate new employment opportunities with competitive wages and benefits.
Keystone Opportunity Zones (KOZS)
Created in 1998, the KOZ program has at times been dubbed the top economic development strategy in the United States. Communities throughout northwest Pennsylvania have identified numerous KOZS, and any business that opens or relocates by buying or leasing property within a KOZ receives a reduction in state and local taxes through a combination of abatements. credits and waivers.
The program has strict eligibility requirements for relocating businesses - such as mandatory increases in full-time employees and minimum real estate expenditures relative to gross revenues and businesses must reapply annually. And there are additional considerations, such as annual reporting obligations, penalties for leaving a KOZ after less than 5 years, and prohibitions on "zone hopping." l.e, relocating from expired to active KOZS or between active zones. Nevertheless, the KOZ program can be instrumental in rehabilitating abandoned or underutilized properties while helping local businesses to open and prosper.
Depending on your business status and your objectives for the coming year, 2022 may be the right time for you and your business to "get in the zone" and apply for one of these helpful programs.
For more information, contact Bill Speros at 814/870-7764 or wsperos@mijb.com, or Michael Micsky at 814/870-7717 or mmicsky@mijb.com.
Article featured in the Manufacturer and Business Associations' December 2021 Business Magazine.
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