Opportunity Zone Overview
Opportunity Zones offer substantial tax incentives for investors who commit long-term capital to designated low-income areas. By investing through QOFs, participants can potentially defer, reduce, or eliminate capital gains taxes, all while supporting transformative community development.
Opportunity Zone Overview
Definition
Opportunity Zones (OZs) are economically distressed communities designated by the U.S. Treasury under the 2017 Tax Cuts and Jobs Act. These zones receive targeted tax incentives to encourage long-term private investment and spur local economic growth.
Purpose
Community Revitalization: Encourages capital to flow into underserved areas, creating jobs, enhancing property values, and improving infrastructure.
Private Sector Involvement: Relies on private investors rather than solely on public funding to drive economic development.
Key Tax Benefits
Capital Gains Deferral: Investors can defer taxes on realized capital gains by reinvesting those gains into a Qualified Opportunity Fund (QOF) within 180 days.
Basis Step-Ups: Holding periods of 5, 7, or 10 years offer partial or total increases in basis, reducing or eliminating capital gains taxes.
Tax-Free Growth: Gains from OZ investments may be tax-free if the investment is held for at least 10 years.
Investing Through Qualified Opportunity Funds (QOFs)
Fund Structure: Must be organized as a corporation or partnership specifically to invest in OZ property or businesses.
Compliance & Reporting: QOFs need to keep at least 90% of assets in OZ property and file IRS Form 8996 to demonstrate compliance.
Eligible Projects & Activities
Real Estate Development: Construction or substantial rehabilitation of residential, commercial, or mixed-use properties in OZs.
Operating Businesses: Startups or growing companies located in OZs that meet “substantially all” usage and other criteria.
Community & Economic Impact
Local Partnerships: Successful projects often involve collaboration among investors, developers, local governments, and nonprofit organizations.
Long-Term Focus: OZ incentives are designed for patient capital, encouraging investments that catalyze neighborhoods over a decade or more.