What are Opportunity Zones?

Reinvesting capital gains into qualified opportunity zone funds for growth and income and for short-term and long-term tax benefits

In collaboration with state and local governments, the U.S. Department of the Treasury has certified 8,700+ communities in all 50 states, the District of Columbia, and five U.S. territories as Opportunity Zones. Quoting the Treasury Department, nearly 35 million Americans live in areas designated as Opportunity Zones. These communities present both the need for investment and significant investment opportunities.

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What are the tax benefits of investing in Opportunity Zones?

Under Section 1400Z of the Tax Cuts and Jobs Act of 2017, investors who elect to reinvest capital gains from capital assets into a Qualified Opportunity Fund will be eligible to receive multiple tax benefits.

1

Deferral of Capital Gains Taxes

Capital gains (short-term or long-term) from the sale or exchange of any capital assets that are reinvested in a Qualified Opportunity Fund within 180 days following the sale or exchange, will be excluded from an investor’s gross taxable income until the earlier of: December 31, 2026 or the date the investor sells its Qualified Opportunity Fund investment.
2

Reduction of Capital Gains Taxes

Investors will receive a 10% step-up in the basis of any capital gains that are reinvested in a Qualified Opportunity Fund, if the investment is held for a period of 5 years prior to December 31, 2026.
3

Elimination of Capital Gains Taxes

Investors in Qualified Opportunity Funds may elect to receive an increase in basis with respect to their investment thereby eliminating, capital gains derived from the appreciation of their investment, if the investment is held for a period of 10 years or more, up to December 31, 2047.
4

Possible State Income Tax Benefits

Depending on the state where an investor is domiciled and whether that state conforms with federal Opportunity Zone regulations, an investor may be entitled to receive the same federal capital gains tax benefits (deferral, reduction, and elimination of capital gains taxes) on a state income tax level.
5

No depreciation recapture

An investor will get the benefit of pass through depreciation and if an investor elected to receive a step up in basis and has held the investment for a period of 10 years or more, up to December 31, 2047, there will be no depreciation recapture.