Community relationships
improve with the involvement of investor business partners.
With the benefits and incentives available through the Empowerment
Zone, our community can make a difference!
EZ Bonds
EZ bonds are bonds issued by a state or local government in a
federally designated "empowerment zone". The bonds are sold in
the public market or placed by an investment banking firm with
investors. The state or local government uses the proceeds received
from the investors to make a loan to a qualifying business borrower
to finance the cost of a commercial, retail or similar facility used
by the borrower. The borrower must be an "enterprise zone
business" and the property financed by the loan must be a
"qualified zone property". After December 31, 2001 there
will be no per borrower limit and bonds will no longer be subject to
the State volume cap. For EZ's or EC's 35 percent of employees must
be
EZ or EC residents.
Interest income received by investors from EZ bonds is not
subject to federal income tax (and usually is also exempt from state
and local taxes). The investor is willing to accept a lower interest
rate because of the tax-exemption. This lowers the cost of borrowing
for the EZ business.
EZ Expensing
Section 179 of the Internal Revenue Code allows an EZ business
to deduct costs of personal property in the year the property is
placed in service, up to the specified limit. The expensing limit
will be up to $35,000 a year on purchases of equipment for in-zone
use. Write-off of costs means that a business does not have to set
up
a tax depreciation schedule.
Non-recognition of Gain on Sale of Empowerment Zone Assets
(EZA)
Capital gain on EZA's (stock, partnership interests, and
business property) of an Enterprise Zone Business held for more than
1 year is not recognized (and is rolled over) if replacement EZA is
acquired within 60 days. This is applicable only for Enterprise Zone
Business in an Empowerment Zone.
Partial Exclusion of Gain on Sale of Empowerment Zone Stock
Exclusion of 60 percent of the gain on the sale of small
business stock of a C Corporation that is an Enterprise Zone
Business
located in an Empowerment Zone if the stock is held for at
least
5 years. Stock must be acquired after December 31, 2000, and
before January 1, 2010, at original issuance in exchange for cash.
Sixty-percent exclusion does not apply to gain after December 31,
2014. A business must be an Enterprise Zone Business in an
Empowerment Zone.
New Markets Tax Credit
Equity investors in qualified Community Development Entities (CDE's)
can obtain a tax credit against Federal taxes of 5 to 6 percent of
the amount invested for each of the years the investment is held,
for up to 7 years of the credit period.
Allocations of the credit
will be made annually from 2001 to 2007
to qualified CDE's.
Low-Income Housing Credit
A tax credit is available for low-income housing constructed,
rehabilitated, or acquired after 1986. The credit amounts to 70
percent of the qualified basis of non-federally subsidized units,
or
30 percent of the qualified basis of units financed with
tax-exempt
bonds or other federal subsidies, but it must be
claimed over a
period of 10 years. The property must continue
to meet the
"low-income" requirements for at least 15 years.
Qualified Zone Academy Bonds (QZAB's)
State or local governments can issue bonds at 0-percent
interest to finance public school programs with private business
partnerships. The Federal Government pays interest in the form of
tax credits to banks, insurance companies, and certain lending
corporations that hold QZAB's. Schools must be located in an EZ or
EC or have 35 percent of students eligible for free or reduced-cost
lunch program. |
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