Michael DeCataldo is the founder and managing member of SK Wealth Management LLC and senior tax partner at Sansiveri, Kimball & Co., a public accounting and business advisory firm in Providence. SK Wealth is the firm’s fee-only financial planning arm. Since 1983, he has been advising Sansiveri clients in the areas of tax, accounting and financial planning.
DeCataldo specializes in advising high net worth individuals and owners of closely held corporations in the areas of retirement, estate, gift, financial and business-succession planning. He provides detailed analysis of the current tax environment and uses his knowledge to provide clients with opportunities for minimizing their tax liabilities. He also works closely with clients to address compliance issues involving the IRS.
He graduated summa cum laude with a bachelor’s degree in accounting, and holds a master’s degree in taxation, both from Bryant University.
PBN: How were Opportunity Zones created and how do they work?
DECATALDO: Opportunity Zones present a breakthrough investment opportunity added to the tax code by the [federal tax overhaul] in December 2017. By definition, they are economically distressed communities where investment is encouraged and incentivized via preferential tax treatment.
In order for a community to be designated as an Opportunity Zone, it needs to be nominated by the state and then become certified by the Secretary of the U.S. Treasury. Once this happens, eligible property within this area can be infused with resources from Qualified Opportunity Funds, which are structured as either partnerships or corporations.
As of June, there are 8,761 Opportunity Zones that span the entire country, the District of Columbia and U.S. territories.
PBN: Are there any Opportunity Zones in Rhode Island?
DECATALDO: As of June, the IRS reported at least 25 Opportunity Zones here in our home state of Rhode Island. Out of this total, the majority of Opportunity Zones are located in Providence County, with the remaining in Bristol, Newport and Washington counties.
PBN: What incentives do Opportunity Zones offer to your clients?
DECATALDO: Opportunity Zones present three tax incentives, which are directly correlated to the longevity of our clients’ stake in a Qualified Opportunity Fund.
At a minimum, any tax on recognized gains invested in an Opportunity Zone can be temporarily deferred. The deferred gain has to be recognized on the earlier of the date on which the Opportunity Zone investment is disposed of or at the end of 2026.
If the investment is held for at least five years, 10 percent of the original gain will be excluded from taxation. If the investment is held for at least seven years, up to 15 percent of the original gain will be excluded from taxation.
Incentives don’t end there; if the investment is held for at least 10 years, any gain on the sale of this investment can avoid federal income tax entirely.
Another attractive feature derives from the fact that Opportunity Zones are investment vehicles designed to stimulate our local economies through job creation. They can play a critical role in improving the well-being of the places where we work and live, as well as unleashing the potential of low-income communities to rebound and thrive.
Articles in national publications are showing that local landowners in depressed areas are seeing sharp increases in value of their properties due to tax advantages to the buyer. This stimulates more property tax dollars and higher resale values long term.
PBN: Do you know of any instances in which Opportunity Zones had a big financial benefit for a client?
DECATALDO: Since the first set of Opportunity Zones were designated in April, it is still too early to quantify the ultimate financial benefit that our clients will experience. Some of our clients are seriously considering electing to defer capital gains by investing in Opportunity Zones. It is clear that this investment opportunity presents advantages over, let’s say, a traditional stock portfolio – providing the opportunity to temporarily defer or permanently exclude tax on capital gains.
PBN: How have Opportunity Zones influenced the way your firm does business?
DECATALDO: We’re constantly on the lookout for advantageous opportunities that will lead to financial success and freedom for our clients. In this particular case, when it comes to Opportunity Zones, benefits will extend beyond them. We couldn’t be more thrilled to be in the position of helping clients navigate and take advantage of this investment vehicle that will also improve the well-being of our communities. This economic tool presents another means for us to deliver impact and ignite growth.
Sansiveri, Kimball and Co. is locally owned, controlled and managed – we’re always pleased to see win-win situations such as this one surface because it expands our capabilities of adding value to our client experience.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.