Community Revitalization by Rewarding Private Investment
Are you interested in reviving hard-hit areas in your community? Could you use a tax benefit, too? The newly created Opportunity Zones program, enacted as part of the Tax Cuts and Jobs Act of 2017, provides an opportunity to do both.
The Opportunity Zones program, found in Sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code (“IRC”), is intended to spur investment in low-income or economically disadvantaged areas.
The tax incentives provide investors with an opportunity to defer recognition of gains on sales of assets, permanently reduce a portion of the deferred gain to be recognized and permanently exempt any future gain with respect to reinvested proceeds, by reinvesting the gain in a Qualified Opportunity Fund (“QOF”), an investment vehicle specifically focused on making investments in Qualified Opportunity Zone (“QOZ”) businesses and/or property, allowing for greater diversification than other tax deferral mechanisms.
Qualified Opportunity Funds
- Investment vehicle organized as a corporation or partnership for purpose of investing in Qualified Opportunity Zone (“QOZ”) property
- QOZs are low-income census tracts (or census tracts contiguous thereto) that are nominated by the governor of each state and each U.S. possession and are approved by the Treasury
- Designation of QOZ will remain in effect for the following 10 calendar years
Available Tax Incentives
1. Temporary deferral for recognition of realized gain until as late as December 31, 2026
- To the extent gain portion of proceeds is reinvested in QOF within 180 days of the sale or exchange of any asset, gain is not required to be recognized in year of sale
- Gain deferred is recognized upon the earlier of the date the investment in QOF is sold, or December 31, 2026
2. Permanent reduction of deferred gain depending on how long the investment in QOF is held
- 10% of original deferred gain if QOF is held at least five (5) years before gain is recognized
- Additional 5% of original deferred gain if QOF is held at least seven (7) years before gain is recognized
3. Exemption from realized gain on QOF investment held at least 10 years
- Gain on subsequent appreciation is eligible for permanent exclusion if QOF investment is held at least 10 years
If you have any additional questions, contact Tax Director Michael Elliot.
