what are the benefits of opportunity zones

by Pattie Wehner I Published 2 years ago Updated 1 year ago

The Tax Benefits of Opportunity Zones

Opportunity zones are a new tax benefit, established by the Tax Cuts and Jobs Act of 2017, designed to spur investment...
The tax benefits are two-fold: taxes owed on capital gains can be deferred, and in some cases reduced, if the gains are...
Investments in an opportunity zone are subject to many rules and restrictions, most of...

Benefits of investing in opportunity zones

Opportunity Zones offer tax benefits to investors who elect to temporarily defer if they timely invest those gain amounts in a Qualified Opportunity Fund (QOF).

Full Answer

What are Opportunity Zones and how do they work?

We talk about:

Goals of the program and tax benefits to investors
Where Opportunity Zones are located and how to view an O-Zone map
Rules on contributions, deferred capital gains tax, and tax-free investment gains
What type of investments inside Opportunity Zones qualify for favorable tax treatment
How to research Qualified Opportunity Funds

What eligible capital gains can I invest in Opportunity Zones?

How to invest in Opportunity Zones?

Deferral of capital gain recognition from the original investment until December 31, 2026.
Reduction of capital gain recognition from the original investment. ...
Exclusion of capital gain recognition on Qualified Opportunity Zone Property held for at least 10 years, so long as the gain from the Opportunity Zone investment is recognized by December ...

What is the Keystone Opportunity Zone?

This is done through:

Tax credits.
Tax waivers.
Broad-based tax abatements.

What is Opportunity Zone?

Opportunity zones are a tax benefit created by the Tax Cuts and Jobs Act of 2017 to spur investment in economically distressed communities. In exchange for qualified investments in specific places, a taxpayer may defer and reduce taxes owed on capital gains and earn tax-free capital gains for opportunity zone investments held at least 10 years.

When are tax rules for opportunity zones issued?

The tax benefits of investing in an opportunity zone are subject to many rules and restrictions, most of which are enumerated in two sets of Treasury Department proposed regulations issued October 2018 and May 2019. There are, however, some universal basics:

How long is the cost basis step up for opportunity zone?

Capital gains from the opportunity zone investment are tax free if the investment is held at least 10 years.

Introduction

Opportunity Zones are a new community development program that was established by Congress via the Tax Cuts and Jobs Act of 2017. The goal of Opportunity Zones is to encourage long-term investments, specifically in low-income urban and rural areas throughout the country, and bolster the economy.

Where and What is an Opportunity Zone?

An Opportunity Zone is an economically distressed urban or rural community that has been identified by certain local, state, and federal qualifications. Additionally, localities can qualify as Opportunity Zones if they have been previously nominated for the designation by the state.

Opportunity Zone Tax Benefits & Incentives for Investors

The government is providing certain opportunity zone tax benefits that wouldn’t normally be available to real estate investors. Here are the top tax benefits associated with investing in Opportunity Zones .

Opportunity Zones vs. 1031 Exchanges: Which Offers Better Tax Incentives for Real Estate Investors?

For many years, savvy real estate investors have used the 1031 Exchange for its tax efficient benefits. However, Opportunity Zones are strategically designed to reward long term investments by deferring capital gains taxes. Investors are able to defer their unrealized capital gains by reinvesting the monies earned into an Opportunity Fund.

Qualified Opportunity Zone Funds

Are you interested in investing in an opportunity zone? If so, consider investing in a Qualified Opportunity Zone Fund. Keep in mind, Qualified Opportunity Zones will remain effective through December 21, 2028.

Opportunity Fund Pitfalls

Despite the many benefits that Opportunity Funds offer to investors, there are always risks associated. The key to mitigating associated risks is to remain diversified, while still taking advantage of the capital gains tax relief available through the program.

Conclusion

In conclusion, Opportunity Zones offer a unique investment opportunity for savvy real estate investors. In order to capitalize on this investment, speak with one our experienced investment counselors. Join RealWealth (it’s free!) to learn more about Opportunity Zones and our upcoming Qualified Opportunity Fund.

What are Opportunity Zones?

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.

Benefits of Qualified Opportunity Zones

Investors can take advantage of one or more of the following benefits:

Is Investing in An Opportunity Zone Right for You?

Opportunity Zones are economic development tools that benefit both the investor and the community invested in. As an investor, you may be considering if investing in Opportunity Zones is a good fit for you especially given the tax benefits. To learn more about Opportunity Zones, and Qualified Opportunity Funds, talk to our team at Growth 1031.

Invest in a Qualified Opportunity Fund

You can support economic development in Qualified Opportunity Zones and temporarily defer tax on eligible gains when you invest in a Qualified Opportunity Fund.

Certify and Maintain a Qualified Opportunity Fund

Find eligibility and filing requirements to certify and maintain a Qualified Opportunity Fund.

Find Qualified Opportunity Zones

Low-income communities and certain neighboring areas, defined by population census tracts, can qualify as Opportunity Zones. States nominate communities for the designation, and the U.S. Department of the Treasury certifies that nomination.

How long can you defer capital gains tax on Opportunity Zone?

First, let’s review the three main tax benefits: When you roll over capital gains into a Qualified Opportunity Fund within 180 days, you are able to defer recognition of that gain until December 31, 2026. (The tax bill on this initial gain would be ...

When is the 10% tax reduction due?

When the tax bill on your initial gain comes due, you are able to reduce the amount of gain recognized by 10%, so long as your Qualified Opportunity Fund holding period reaches at least five years by the end of 2026. (The ability to reduce the amount of recognized gain by 15% expired on December 31, 2019.)

Do you pay tax on qualified opportunity funds?

Essentially, you pay zero tax on your long-term Qualified Opportunity Fund gains. These three main tax benefits are well known. But now let’s discuss Opportunity Zone investing’s two hidden benefits.

Taxing Long-Term Capital Gains – A Review

Calculating The Tax Benefit of An Opportunity Zone Investment

In the example above, investing the $500,000 capital gain from the traditional asset in a qualified opportunity zone would allow the investor to defer and reduce the $119,000 tax owed. The investor could potentially earn additional capital gains tax-free, depending on how long the opportunity zone investment is held. 1. Investments held at least fi...

See more on rpc.senate.gov

Special Rules Apply

The tax benefits of investing in an opportunity zone are subject to many rules and restrictions, most of which are enumerated in two sets of Treasury Department proposed regulations issued October 2018 and May2019. There are, however, some universal basics: 1. In general, capital gains from the sale of a traditional asset must be reinvested in a qualified opportunity zone withi…