What are Opportunity Zones?
Opportunity Zones are designated low-income areas in the United States that have been identified as needing economic development. They were established by the Tax Cuts and Jobs Act of 2017 as a way to encourage investment in these communities.
How do Opportunity Zones work?
Investors who invest capital gains into a Qualified Opportunity Fund (QOF) can receive tax benefits, such as temporary deferral and potential exclusion of those capital gains. The QOF must then invest in a qualifying Opportunity Zone property or business.
What types of investments can be made in Opportunity Zones?
Opportunity Zone investments can be made in a variety of properties and businesses, including real estate, infrastructure, and operating businesses.
What is a Qualified Opportunity Fund?
A Qualified Opportunity Fund is an investment vehicle that invests in eligible property or businesses located in Opportunity Zones. It must be organized as a corporation or partnership, and at least 90% of its assets must be invested in Opportunity Zones.
What are the tax benefits of investing in an Opportunity Zone?
Investors who invest in a QOF can defer capital gains taxes until the earlier of the sale of the investment or December 31, 2026. If the investment is held for at least 5 years, the investor can receive a 10% step-up in basis, and if it is held for at least 10 years, the investor can receive a permanent exclusion of capital gains taxes on the appreciation of the Opportunity Zone investment.
Are there any limitations on the amount of capital gains that can be invested in an Opportunity Zone?
No, there are no limitations on the amount of capital gains that can be invested in an Opportunity Zone. However, only capital gains are eligible for the tax benefits associated with investing in a QOF.
How long will the Opportunity Zone program be in effect?
The Opportunity Zone program is set to expire on December 31, 2026, unless Congress extends it.
Where can I find a list of Opportunity Zones?
The IRS has published a list of designated Opportunity Zones on its website or you can view our interactive US map of all locations on our website.
When do I have to invest the amount of an eligible gain in a QOF to qualify for the QOZ tax incentives?
Generally, you have 180 days to invest an eligible gain in a QOF. The first day of the 180-day period is the date the gain would be recognized for federal income tax purposes if you did not elect to defer the recognition of the gain.
What types of gains are eligible for deferral if I invest in a QOF?
Gains that may be deferred are called “eligible gains.” They include both capital gains and qualified 1231 gains, but only gains that would be recognized for federal income tax purposes before January 1, 2027, and that are not from a transaction with a related person. For you to obtain this deferral, the amount of the eligible gain must be timely invested in a QOF in exchange for an equity interest in the QOF (qualifying investment). Once you have done this, you can claim the deferral on your federal income tax return for the taxable year in which the gain would be recognized if you do not defer it.