Opportunity Zones are a new revitalization tool resulting from the Federal Tax Cuts and Jobs Act of 2017. The Zones will allow investors to receive tax benefits on currently unrealized capital gains by investing those gains in census tracts designated as Opportunity Zones. The U.S. Department of the Treasury is preparing regulations for this new program.
What are the tax benefits to Investing in Opportunity Zones?
For an investor to realize the tax benefits of investing in Opportunity Zones, an investor's capital gains must be invested in a Qualified Opportunity Fund within 180 days of the sale or exchange that generated the gains. Investors are then eligible to defer the tax on their capital gains until the earlier of: the date the Opportunity Fund investment is sold or December 31, 2026.
The capital gains invested in a Qualified Opportunity Fund are eligible for partial tax forgiveness if the investment is held in a Qualified Opportunity Fund for at least 5 years. After 5 years, only 90 percent of the original gain is taxed. If the investment is held for 7 years, only 85 percent of the original gain is taxed.
If an investment in a Qualified Opportunity Fund is held for 10 years, any tax on the appreciation of that investment is forgiven.
What are Opportunity Funds?
Opportunity Funds are Treasury-certified investment vehicles that deploy capital into Opportunity Zone property.
What are Opportunity Zone properties?
Assets such as:
- Stock in a qualified opportunity zone business
- Partnership in a qualified opportunity zone business
- Property in a qualified opportunity zone business; tangible property used in a trade or business