FAQ
Curious About Opportunity Zones? Start Here.
Opportunity Zones are a bipartisan provision of the Tax Cuts and Jobs Act of 2017 championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ).
The legislation is designed to encourage and incentivize investors to redeploy and invest capital into low-income communities.
"Opportunity Funds" managed by professionals are currently being formed for the purpose of investing directly into low-income communities designated Opportunity Zones. Individuals may also form, fund and self manage an Opportunity Fund via a straightforward "self-certification" process.
Opportunity Zones have no detrimental effect on state or local tax revenue. The goal is to increase investment in low-income communities to solidify and strengthen the state and local tax base!
The legislation is designed to encourage and incentivize investors to redeploy and invest capital into low-income communities.
"Opportunity Funds" managed by professionals are currently being formed for the purpose of investing directly into low-income communities designated Opportunity Zones. Individuals may also form, fund and self manage an Opportunity Fund via a straightforward "self-certification" process.
Opportunity Zones have no detrimental effect on state or local tax revenue. The goal is to increase investment in low-income communities to solidify and strengthen the state and local tax base!
What are the Tax Incentives for Investors?
- A Temporary Tax Deferral: An investor may defer recognition of income associated with any current capital gains realized (but not yet recognized for federal tax purposes by the private investor) that are reinvested into an Opportunity Fund.
- A Step-Up in Basis: An investor is granted a step-up in the basis of any current capital gains reinvested into an Opportunity Fund. The private investor's basis in his or her original investment is increased by ten percent (10%) of the amount of the unrecognized capital gain if the Opportunity Fund investment is held for a minimum of five (5) years, and an additional five percent (5%) if the investment is held for a minimum of seven (7) years. * The effect of the step-up in basis is to reduce the amount of the re-invested capital gain that is subject to tax. (* 5% step-up in basis only available on investments made prior to Dec 31, 2019)
- Permanent Exclusion of Opportunity Fund Capital Gains Income: Long term investments in Opportunity Funds are encouraged because private investors are granted a permanent exclusion of any future capital gain income realized upon the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least ten (10) years. Thus, in such a case, a private investor would be permitted to exclude the entire amount of gain an investment accrues after the initial investment is made into the Opportunity Fund.
Real estate and businesses (i.e., LLCs, corporations, partnerships, etc.) located in Opportunity Zones are generally eligible for investment. Federal Treasury Regulations provide additional detail about qualifying investments, however, generally:
- Opportunity Funds may generally hold an interest in real estate located in Opportunity Zones (either directly or through business entities) and develop real estate properties.
- Opportunity Funds may generally invest in for-profit entities located in Opportunity Zones (for example, start-up technology companies in business accelerators or incubators).
- Investments must meet certain "substantial improvement" requirements the details of which are set forth in the Federal Treasury Regulations.
Opportunity zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
No. You can get the tax benefits, even if you don’t live, work or have a business in an opportunity zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.
Tangible property is original use on the date first placed in service in the qualified opportunity zone for purposes of depreciation or amortization. Used tangible property satisfies the original use requirement if the property has not been previously placed in service in the qualified opportunity zone.
