New to Opportunity Zones? This guide provides comprehensive information on Opportunity Zones and how to invest in Qualified Opportunity Zone Funds. If you are interested in creating a positive social impact and seeking the incredible capital gains tax advantages that the OZ incentive offers, keep reading.
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Table of Contents
How the rise of inequality in America paved the way for several place-based policies over the years, leading to the Investing in Opportunity Act, which was passed as part of the Tax Cuts & Jobs Act of 2017.
Chapter 2: The Investing in Opportunity Act
The Investing in Opportunity Act is the legislation that defines Internal Revenue Code Section 1400Z, otherwise known as the Opportunity Zones tax incentive. The intent of the program is to spur private capital investment into under-invested, economically distressed communities.
Chapter 3: What are opportunity zones?
Section 1400Z of the Internal Revenue Code defines “Qualified Opportunity Zones” as low-income census tracts that were nominated by state governors and certified by the U.S. Treasury as qualified opportunity zones.
Chapter 4: What are qualified opportunity funds?
A qualified opportunity fund is any investment vehicle organized as a partnership or corporation for the purpose of investing in one or more qualified opportunity zones. An opportunity zone fund must hold at least 90 percent of its assets in qualified opportunity zone property.
In the appendix to this guide, several examples demonstrate the tax savings potential of investing in Opportunity Zones.
Tax incentives for Qualified Opportunity Zone Funds
An investor who is subject to capital gains as the result of an asset sale can take advantage of the tax incentives of investing in a Qualified Opportunity Zone Fund, so long as the investment is made within 180 days of the capital gains event.
There are three tax incentives for investing in a Qualified Opportunity Zone Fund — deferral, reduction, and exclusion.
- Deferral of capital gains invested until December 31, 2026.
- Reduction of capital gains invested. The cost basis on the original capital gains invested in an QOZ fund can be stepped up by 10 percent after 5 years; and an additional 5 percent after 7 years, leading to a 15 percent reduction in capital gains tax.
- Exclusion of gain on qualified opportunity zone property held for at least 10 years.
How to invest in Qualified Opportunity Zone Funds
Anyone with capital gains may invest in Opportunity Zone Funds. Minimum investments are often in the 5- or 6-figure dollar range. As of now, several dozen such funds exist. Once the Treasury Department releases their final regulations later in 2019, there should be many more opportunity funds created.