Qualified Opportunity Zones
Qualified Opportunity Zones
An Opportunity Zone is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
Opportunity zones were established with the Tax Cuts and Jobs Act (TCJA) in late 2017 to draw in real estate investors and spur economic growth in urban, suburban and rural areas in Atlanta, Georgia and across the country.
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. Treasury via his delegation authority to the Internal Revenue Service. The program allows investors who recognize capital gains to reinvest those gains in Qualified Opportunity Funds (QOFs) that, in turn, invest in one of nearly 9,000 designated Qualified Opportunity Zones (QOZs) throughout the United States and certain U.S. territories.
There are a variety of tax-related questions that factor into the decision-making process for companies and individuals as they evaluate the benefits and risks of investing in opportunity zones. Our Tax team offers guidance on these benefits and risks to provide the greatest tax benefit from these investments.
Qualified Opportunity Zones Benefits
Qualified Opportunity Zones offer three tax incentives for investing in low-income communities through a Qualified Opportunity Fund:
1. Temporary deferral of taxable income on capital gains reinvested into a Qualified Opportunity Fund.
- Unlike a 1031 exchange, only proceeds equal to the gain need to be invested.
- The deferred gain must be recognized on the earlier of the date in which the opportunity zone investment is disposed of or December 31, 2026.
- In addition to investment gains, capital gains generally include gain from the sale or exchange of property used in a trade or business.
2. Step-up in basis for capital gains reinvested in an Opportunity Fund.
- The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
3. A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a Qualified Opportunity Fund if the investment is held for at least 10 years.
- This exclusion only applies to gains accrued after an investment in a Qualified Opportunity Fund.
Our Qualified Opportunity Zones Services
- Accounting, Tax, Compliance and Reporting:
- Fund set-up and structure
- Regulatory compliance testing
- Tax preparation and compliance
- Exit planning
- Accounting, bookkeeping and reporting