THREE MAIN INCENTIVES
Few programs in modern American history have the potential to touch the lives of so many people as powerfully as Opportunity Zones, which are now home to approximately 31.3 million Americans in all 50 states and the District of Columbia — or roughly 10% of the country. An additional 3.7 million people reside in Opportunity Zones in five U.S. territories. But Opportunity Zones also deliver long-lasting solutions by structuring rewards to serve local communities for the long-term. Only investors who commit capital for five, seven, and ten years receive the tax law’s formidable financial benefits. That means new growth becomes consistent growth, and new jobs become steady jobs.
A temporary deferral of inclusion in taxable income for capital gains reinvested into an QOF. The deferred gain must be recognized on the earlier date on which the opportunity zone investment disposed of or by December 31, 2026.
A step-up in basis for capital gains reinvested in an QOF. the basis increased by 10% if the investment in the QOF 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.
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after investment in a Qualified Opportunity Fund.
The Opportunity Zone Program does more than create tax benefits for investors. It illuminates profitable investment opportunities in previously disregarded smaller, lower profile locations.
By putting their resources in OZs, investors can drastically reduce the amount of capital gains tax they have to pay. For example, if an investor sells a property, invests the proceeds in an OZ within 180 days of that sale, and keeps the investment through 2026 (as long as it was made before the end of 2019), they will receive a 15 percent reduction in capital gains tax. Most importantly, if the investment stays in a QOF that holds onto it for ten years or longer, the capital gains tax is eliminated entirely. But all of these advantages are time-sensitive.
OZs will expire in 2026, which means investors have to act quickly if they want to take advantage of certain elements of the program. For example, to get the 15 percent reduction in capital gains tax, reinvestment in an OZ has to be finalized by the December 31, 2019. What's more, investors are competing to identify the OZs with the most potential. These are all reasons why investors should be looking into OZs sooner rather than later. Not only do they have an opportunity to benefit from some of the most generous tax incentives the U.S. government has offered in decades, but they can also contribute to the restoration of American cities that have been neglected for far too long