The Basics of Opportunity Zones

 

What is an Opportunity Zone?

 An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury.

How were Opportunity Zones created?

Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.

When were Opportunity Zones designated?

The first set of opportunity zones, partially covering 18 states, were designated on April 9,2018. They have now been designated across all 50 states, The District of Columbia and five other U.S. territories.

What is the purpose of Opportunity Zones?

Opportunity Zones were designed as an economic development tool to stimulate and enhance distressed communities through development and job creation.

How do Opportunity Zones spur economic development?

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.

What is a Qualified Opportunity Fund?

A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.

Do you need to live in an Opportunity Zone to take advantage of the tax benefits?

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.

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