Frequently Asked Questions
What is an Opportunity Zone?
An economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as O-Zones if nominated by the state and certified by the Secy of the Treasury via his delegation authority to the Internal Revenue Service.
How are Opportunity Zones designated?
The Treasury Secy certified the nominated census tracts in every state, territory & the District of Columbia. For the next ten years, private investors will be eligible for certain tax benefits in return for investing in these distressed communities.
How many Opportunity Zones are there?
On June 14th, the Dept. of the Treasury certified the final round of states’ nominations, bringing the total number of qualified census tracts to more than 8,700 across all states, territories, and the District of Columbia.
Who should be interested in an Opportunity Zone?
Anyone looking to defer short-term or long-term capital gains may be interested in O-Zones. Investments in the O-Zones are made through Opportunity Funds.
What are the tax benefits of investing in an Opportunity Zone?
O-Zone reinvestments receive a 10% decrease in basis after 5 years, and 15% total after 7 years. Capital gains tax are deferred until Dec 31, 2026. There will be no capital gains tax on the O-Zone investment after 10 years.
How does investing in an Opportunity Zone differ from a Section 1031 Exchange?
Unlike a 1031 exchange, an O-Zone investment is made without the use of an intermediary. When investing in an O-Zone, it’s not required to invest the entire proceeds; only the capital gains need be invested. O-Zone investors also receive a basis decrease after 5-7 years. A 10% decrease after 5 years and an additional 5% after 7 years, totaling 15%.
What is an Opportunity Fund?
A qualified Opportunity Fund is an investment vehicle set up as either a partnership or corporation for investing in eligible property located in an O-Zone, that utilizes investor gains from a prior investment for funding.
What is the purpose of an Opportunity Zone?
An O-Zone is designed to stimulate economic development and job creation in distressed communities.
How does an Opportunity Fund invest in an Opportunity Zone?
Opportunity Funds can invest in a variety of ways. For instance, an Opportunity Fund can invest in commercial real estate development, a large expansion of businesses already in the O-Zone, or the creation of new businesses in the O-Zone.
What is the timeframe to invest capital gains into an Opportunity Fund?
An investor must invest his/her capital gains into an Opportunity Fund within 180 days of realizing the gains.
How does an individual taxpayer get certified as a qualified Opportunity Fund?
Per IRS guidance, Opportunity Funds will be self-certified (no approval or action by the IRS is required.) To self-certify a taxpayer will complete a form and attach it to his/her federal tax return for the taxable year. Additional compliance and reporting requirements are TBD.