MONEY 95 - PATH ACT

THIS IS MY 95^TH BLOG ON UNDERSTANDING MONEY TOOLS

In this blog we’ll cover the key points of a recent Act that passed Congress and is intended to help attract investment money in new start-ups.  This was brought to my attention by a close friend.

The Act extended many things like depreciation incentives,  holding true to Real Estate Investment Trusts, however it also favors new investments if someone is willing to hold a new investment for a minimum of 5 years.  The Act is the Protecting Americans from Tax Hikes Act (PATH) that passed December 18, 2015.  This portion of the Act is aimed at “Angel Investors”, entrepreneurs and early stage venture capitalists.  Most of the job growth in the country over the past 15 years or so has been attributed to new companies, many out of the San Francisco area in high tech.

In a quick summary the Act provides a 100% tax break up to $10 million for equity investments in qualified small businesses.  This needs to be done in a stock equity position and held for a term of a minimum of 5 years with total aggregate assets of no more than $50 million.

This would save an investor or firm the normal long-term capital gains tax of 20% for an asset held a minimum of 12 months, and Federal net investment tax of 3.8%.

Prior to making an investment with such intent it is advisable to speak with a good tax accountant or tax lawyer.

The main problem I see with these restrictions is that most start-ups (about 90%) fail in the first 3 years of business, so this may not be applicable to many situations.  On the other hand it should help when attracting venture money from large investors or venture firms which spread their risk amongst several companies.

We need to get this country going again, and this is one step in the right direction.