About Opportunity Zones
Opportunity Zones are a new community development program that was established by Congress via the Tax Cuts and Jobs Act of 2017. The goal of Opportunity Zones is to encourage long-term investments, specifically in low-income urban and rural areas throughout the country and bolster the economy.
•There are currently over 8,700 designated Opportunity Zones within the United States. An Opportunity Zone is an economically distressed urban or rural community that has been identified by certain local, state, and federal qualifications. •Taxpayers can exclude or postpone taxes on capital gains that come from investing in a qualified Opportunity Zone fund, should the fund be held for at least 10 years. This means that both investors and syndicators can benefit from investing in Opportunity Zones.
The secret of The OZF
1. Temporary Capital Gains Tax Deferral: This deferral is only applicable for capital gains that are reinvested in an Opportunity Fund. Additionally the deferred gain must be recognized before 12/31/2026
2. Step Up In Basis For Capital Gains: Investors can get a step up in the basis for capital gains that are reinvested in an Opportunity Fund. The basis is increased by 10 percent should the investment in the Opportunity Fund be held by the taxpayer for at least five years. If the investment is held for at least seven years, then the basis will increase an additional five percent. This means that investors can exclude up to fifteen percent of the original gain from taxation.
3. Permanent Exclusion: Investors may also get a permanent exclusion from taxable income on capital gains from the sale or exchange of an investment in an Opportunity Fund, so long as the initial investment is held for at least ten years. This exclusion, however, only applies to gains accrued after an investment has been made in a Qualified Opportunity Zone.
The Requirements of an OZF.
A Qualified Opportunity Fund is a U.S. partnership or corporation that will invest at least 90 percent of its holdings in one or more Qualified Opportunity Zones. There are three types of investments that can qualify:
1. Partnership interests in businesses that operate in a qualified Opportunity Zone.
2. Stock ownership in businesses that conduct the majority (or all) of their operations within a qualified Opportunity Zone.
3. Property, such as factory equipment or real estate, that is located within a qualified Opportunity Zone.
There are certain requirements and certifications that Qualified Opportunity Funds must meet. Some of these requirements and certifications include:
• Certified by the U.S. Treasury Department.
• Organized as either a corporation or partnership that has the purpose of investing in Qualified Opportunity Zone Property.
• Hold at least 90 percent of their assets in Qualified Opportunity Zone Property. • Qualified Opportunity Zone property includes newly issued stock, partnership interests, or business property in a Qualified Opportunity Zone.
• Opportunity Fund investments are limited to equity investments in businesses, real estate, and business assets that are located in a Qualified Opportunity Zone.
Although this site is meant to offer a high level overview of Opportunity Zones and Opportunity Funds, it is by no means meant to be exhaustive on the subject. Further research may be required.
