Opportunity Zones are intended to jump start private investment in low income communities by providing tax benefits to investors. Benefits exist for Qualified Opportunity Funds and Qualified Opportunity Zone Properties.
Qualified Opportunity Funds
Any tax corporation or partnership (including LLC’s) which was organized to invest in Qualified Opportunity Zone property can self-certify as a qualified opportunity fund.
Qualified Opportunity Zone Properties
This includes qualified opportunity zone stock, qualified opportunity zone partnership interests, and qualified opportunity zone business property.
Where are Opportunity Zones?
Opportunity Zones are designated by Treasury. A map of current opportunity zones may be found here.
Additional information from the IRS can be found here.
Benefits for Taxpayers
Any individual, corporation, or trust can defer capital gains realized from the sale or exchange of a capital asset to an unrelated person by investing all or a part of such gain in a Qualified Opportunity Fund within 180 days of the realization event or longer if passed through to partners/shareholders. Benefits may include deferrals, reductions and/or elimination of taxes on gains. Gain is realized on or before 12/31/2026 on all or a portion of the gain which is the lesser of FMV over basis or deferred gain over basis.
- Deferral of Taxes on Original Gain
Tax on the invested gain amount will be deferred until the sale of the fund or property, or 12/31/2026, whichever is earlier.
- Exclusion of Taxes on Original Gain
Depending on the holding period, up to 15% of the original gain will be excluded from tax. For periods up to 5 years, 100% of the original gain will be taxed. This drops to 90% for periods of 5-7 years and 85% for periods over 7 years.
- Elimination of Taxes on Gain from Qualified Opportunity Funds
If the fund or property is held for more than 10 years, the tax on post-acquisition capital gains will be eliminated completely.
For more information on Opportunity Zones, or to start a conversation, contact Teri Samples, CPA, Partner and Director of Construction and Real Estate Services at Mueller Prost.