Opportunity Zones: A New Investment Opportunity
Community Revitalization by Rewarding Private Investment
Are you interested in reviving hard-hit areas in your community? Could you use a tax benefit, too? The Opportunity Zones program, enacted as part of the Tax Cuts and Jobs Act of 2017, provides an opportunity to do both.
The Opportunity Zones program, found in Sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code (IRC), is intended to spur investment in low-income or economically disadvantaged areas.
The tax incentives provide investors with an opportunity to defer recognition of gains on sales of assets, permanently reduce a portion of the deferred gain to be recognized and permanently exempt any future gain with respect to reinvested proceeds. This occurs by reinvesting the gain in a Qualified Opportunity Fund (QOF), an investment vehicle specifically focused on making investments in Qualified Opportunity Zone (QOZ) businesses and/or property, allowing for greater diversification than other tax deferral mechanisms.
Tax Incentives Available
- Temporary deferral for recognition of realized gainuntil as late as December 31, 2026
- To the extent gain portion of proceeds is reinvested in QOF within180 days of the sale or exchange of any asset, gain is not required to be recognized in year of sale
- Gain deferred is recognized upon the earlier of the date theinvestment in QOF is sold, or December 31, 2026
- Permanent reduction of deferred gain depending onwhen the investment was made and how long the investment in QOF is held
- Calculation of 10% and 5% step up for qualifying investments
- Exemption from realized gain on QOF investment held
at least 10 years- Gain on subsequent appreciation is eligible for permanent exemption from tax
