Downtown El Dorado designated as Opportunity Zone

Downtown El Dorado has been designated as one of 74 Opportunity Zones in Kansas. This is the only designated area in Butler County.

As an Opportunity Zone, eligible business in Downtown El Dorado will receive capital gains incentives from the Tax Cuts and Jobs Act of 2017.

“The Opportunity Zone is a federal designation,” El Dorado City Manager David Dillner said. “The governors submitted eligible census tracts and then the Department of Treasury had to certify them. It’s incentive for capital gains taxes.”

Downtown El Dorado has been designated as one of 74 Opportunity Zones in Kansas. This is the only designated area in Butler County.

As an Opportunity Zone, eligible business in Downtown El Dorado will receive capital gains incentives from the Tax Cuts and Jobs Act of 2017.

“The Opportunity Zone is a federal designation,” El Dorado City Manager David Dillner said. “The governors submitted eligible census tracts and then the Department of Treasury had to certify them. It’s incentive for capital gains taxes.”

The recent spike in the stock market opened up some opportunities for capital gains in certain areas. This program is designed to target area for further economic development.

“They estimate there is about $2.3 trillion worth of potential capital gains out there with the increase in the stock market,” Dillner said. “With the (Tax Cuts and Jobs Act of 2017) they put provisions that allowed for the creation of opportunities in there. It will allow investors to defer and or cancel their capital gains from the sale of stocks, bonds and real estate.”

Those gains can be invested into the opportunity zones for benefits.

“Investors can invest their capital gains in those districts either in the form of investing in an equity investment in business, or in real estate,” Dillner said. “Based upon the length of their investment, they receive benefits. If you hold your investment for five years or less, you get a certain percentage forgiven or deferred. If you hold it for 5 to 7 years, 7 to 10 and then 10 or more. Based on the duration there are benefits you can receive for your capital gains.”

The designation could mean potential growth to Downtown El Dorado. At least that is the intent.

“The goal of the legislation is to give folks that have seen significant advances in their portfolio to sell some of those assets and invest them in what they are calling distressed communities,” Dillner said. By incentivizing those investments to happen in those areas, they’re hoping to get those dollars come into these communities and invest those directly into either real estate or the improvement of those communities.”

Local Municipalities are encouraged to package other incentives with the Opportunity Zone to help attract investors.

“One thing they are encouraging communities to do is look at the opportunity zone and figure out ways of layering incentives on top of that,” Dillner said. “A person comes in and gets the opportunity zone benefit but the building they buy is neighborhood revitalization eligible. You can throw tax credits on top of that and now their project is more feasible and you get a better return on investment.”

There will also be funds available for communities in designated zones.

“They are hoping to get these investors from all across the country to pool their money into these funds and they will distribute that money,” Dillner said. “Could be by state, across the nation, they could target specific areas. We really don’t know what that is going to look like but that could be another venue where capital comes into the community to infuse businesses, or rental properties or income generating properties.”

Dillner announced the designation at the El Dorado City Commission meeting Monday and the city of El Dorado is planning to move forward swiftly to find ways the community can take advantage.

“The (Internal Revenue Service) is going to develop guidance for how investors will treat the tax gains from the program,” Dillner said. “That will come out hopefully in June or July and what we are planning to do is take that guidance and assemble a team comprised of various stake holders in the community to start talking about ways we can capitalize from this potential benefit.”