Opportunity Zones

The Tax Cuts and Jobs Act of 2017 established the Opportunity Zones (OZ) program, an economic development tool designed to increase new, long-term investments and development in economically challenged urban and rural communities across the country.

Opportunity Zones provide investors with a chance to infuse capital gains into projects within zones, in exchange for reducing or eliminating the taxes they would otherwise pay. Each state’s governor, utilizing multiple socio-economic data points and input from local communities, nominated and submitted census tracts to the U.S. Treasury for certification as Opportunity Zones. Once certified, they were then added to the tax code.

All investments must be made through a Qualified Opportunity Fund. To become a Qualified Opportunity Fund, an eligible corporation or partnership must self-certify by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. Investments can be made in business property, partnership interests, or equity/stock.

There are three tax incentives available for investing in Opportunity Zones through a Qualified Opportunity Fund:

• Temporary Deferral: An investor can defer capital gains taxes until December 31, 2026 by rolling their gains directly over into a Qualified Opportunity Fund.
• Tax Liability Reduction: Deferred capital gains tax liability is reduced by 10% if the investment in the Qualified Opportunity Fund is held for five years. It is reduced by an additional 5% if held for seven years. To receive the full 15%, investments must be made by December 31, 2019.
• If the investment is held for at least 10 years, capital gains made through Qualified Opportunity Funds accrue tax-free

Source: U.S. Department of Treasury, Economic Innovation Group