What is a Qualified Opportunity Zone?
The Tax Cuts and Jobs Act of 2017 created Qualified Opportunity Zones, which are economically-distressed areas designated by the government that provide certain tax benefits to investors in an effort to spur economic development and job creation. (See also https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions)
Where are Qualified Opportunity Zones located?
A map of Qualified Opportunity Zones can be found at https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml
How were the Qualified Opportunity Zones selected?
The governor of each state or locality (i.e., Puerto Rico) nominated certain census tracts with distressed communities within their jurisdiction. The Secretary of the U.S. Treasury then certified these tracts as Qualified Opportunity Zones.
Are the designated Qualified Opportunity Zones final?
Yes. Each state has already reached its maximum allowable designations of Qualified Opportunity Zones.
What is a Qualified Opportunity Fund?
A Qualified Opportunity Fund is an investment vehicle set up as a partnership, limited liability company or corporation, aimed specifically at Qualified Opportunity Zones, that are subject to strict requirements and provide certain tax benefits to investors.
How do I create and maintain Qualified Opportunity Fund?
In order to create a Qualified Opportunity Fund you must (1) file Form 8996 with the IRS to self-certify as a Qualified Opportunity Fund and (2) make sure at least 90% of the fund’s assets are located in Qualified Opportunity Zones. Click here for more detail.
What are the tax benefits available to individuals that invest in Qualified Opportunity Funds?
There are two significant tax benefits available to individuals who invest in Qualified Opportunity Funds.
First, an investor may defer paying taxes on capital gains until December 31, 2026 if the capital gains are invested in a Qualified Opportunity Fund.
Second, if capital gains are invested in a Qualified Opportunity Fund for at least five (5) years, the investor receives a tax basis increase of 10%, meaning only 90% of the capital gains is taxed. The tax basis is increased to 15% if the capital gains are kept in the Qualified Opportunity Fund for at least seven (7) years. In order to realize the full benefit of the 15%, an investor must invest by the end of 2019.
Further, if the capital gains are left in a Qualified Opportunity Fund at least ten (10) years, then the investor will not pay capital gains tax on any appreciation of the asset. Click here for more details and examples.
What types of capital gain may be invested in a Qualified Opportunity Fund?
Any type of capital gain may be invested in a Qualified Opportunity Fund, including, real estate, stock, cryptocurrency, artwork, etc. An investor must reinvest capital gains into a Qualified Opportunity Fund within 180 days in order to qualify. Click here#3 for more details.
What can a Qualified Opportunity Fund invest in?
A Qualified Opportunity Fund may invest in real estate located in Qualified Opportunity Zones, including existing businesses, vacant or abandoned property and/or raw land.
How do I form a Qualified Opportunity Zone?
The Qualified Opportunity Zones have already been finalized by the government. Although you may not form a new Qualified Opportunity Zone, you may invest in existing Qualified Opportunity Zones individually or through a Qualified Opportunity Fund.
What is a Qualified Opportunity property?
A Qualified Opportunity property is real estate located within Qualified Opportunity Zones.
What is a Qualified Opportunity Zone business?
A Qualified Opportunity Zone business is a business located within a Qualified Opportunity Zone that holds at least 70% of its assets in a Qualified Opportunity Zone.
What is a Gulf Opportunity Zone?
The Gulf Opportunity Zone Act of 2005 is a separate, but similar law that provides tax incentives to the areas impacted by Hurricane Katrina in 2005.