Wed, May 22, 2024

McAllen Foreign Trade Zone

Special Programs

What Are Opportunity Zones?

Opportunity zones were created in the 2017 Tax Cuts and Jobs Act to help economically distressed communities benefit from a capital gains tax incentive. The Governor from each state nominated economically distressed areas (census tracts) based on the following low-income requirements as defined by U.S. Internal Revenue Code Section 45D(e)

  • Poverty Rate < 20%; or
  • Median family income of:
    • No more than 80% of statewide median family income for census tracts within non-metropolitan areas.
    • No more than 80% of the greater statewide median family income of the overall metropolitan median family income for census tracts within metropolitan areas.

Up to 25% of census tracts of each jurisdiction that met this criteria could be nominated. An additional 5% of each jurisdiction could quality if the met additional income and geographic requirements:

  • Census tract contiguous with low-income Opportunity Zone and
  • Median family income of no more 135% median family income adjacent Qualified Opportunity Zone

How Do Opportunity Zones Work

You sell a building for $2 million with $1 million capital gain. $150K capital gains tax are due (15% tax rate).
You deposit $1 million capital gain into Qualified Opportunity Zone fund which is used to purchase real estate, partnership interest, or equity in an existing business inside Opportunity Zone Census Track. $150K capital gains tax is deferred.
Hold Assets
Hold the asset inside the Qualified Opportunity Fund for 5 years cost basis is reduced by 10% capital gain tax is reduced by 15K; Hold for 7 years cost basis is reduced by 15% capital gain tax reduced by 22.5K
10 Year Sell
After 10 years asset is now sold for $2 million ($1 million capital gain); pay no capital gains tax on $1 million.

Total Tax Savings at 10 years $172.5k: $22.5k (savings from original $1 million capital gain) plus $150K (savings from $1 million capital gain of Qualified Opportunity Fund)

McAllen Opportunity Zones

Opportunity Zones Map
View Texas Opportunity Zone Map here

  • The City of McAllen has 4 designated Census Tracts eligible for Opportunity Fund investments
    • Census tract 201.02
    • Census tract 213.05
    • Census tract 205.03
    • Census tract 213.04
  • Assets in and around Census tracts
    • Infrastructure – highway access, rail, air, sea port, international bridges, overweight corridor, water, sewage, dual feed power, foreign trade zone
    • Industrial Parks – 3 industrial parks inside McAllen opportunity zones with companies in aerospace, advanced manufacturing, automotive manufacturing, logistics, etc..
    • Workforce – 2.5 million people in the region in both U.S. and Mexico with a median age of only 29 years old. South Texas College, UTRGV, Texas A&M offering technical trainings

Project 1 - Spec Building Example

  • The City of McAllen is currently seeking $6 million investment for 120,000 sq. ft. industrial building
  • The building will be leased out into industrial companies
  • Current estimated lease terms
    • Length 10 years
    • Rate $0.40 per sq. ft.; triple net $0.13 per sq. ft.
    • Annual cash flow $576,000
    • Annualized ROI 9.6%
  • 32% Avg. appreciation over 10 year period for real estate inside McAllen opportunity zone industrial parks
    • Randomized sample of real estate values currently inside McAllen opportunity zone industrial parks comparing appraisal values in 2009 to 2019

Total Investor Benefits over 10 years

  • Annual cash flow $576,000 times 10 years - $5.76 million
  • Capital gains tax savings initial investment - $6 million times 15% - $900k
  • Capital gains tax savings building appreciation - $1.92 million times 15% -$288k
  • Total investor benefits - Total tax savings $1.188 million; Total cash flows $5.76 million

Wed, May 22, 2024

Member of:

Southern Economic Development Council Texas Economic Development Council