The Tax Cuts and Jobs Act contains new incentives for taxpayers to invest in distressed communities called “Opportunity Zones.” Opportunity Zones are designed to encourage economic growth and investment in certain population census tracts nominated by state and local governments.

Taxpayers who realize capital gains from other investments and then, within 180 days, reinvest amounts equal to those gains in real estate and operating businesses located within Opportunity Zones, may be entitled to:

(1) defer tax on the original capital gain until 2026;

(2) earn a basis step-up of up to 15% on the original capital gain, and

(3) avoid paying any tax on capital gains from the sale or exchange of any Opportunity Zone investments held for 10 years or more.

TAX DEFERRAL BENEFITS

An investor may defer paying any tax on his or her original capital gain until 2026. 

TAX EXCLUSION BENEFITS

If an investor holds a qualifying opportunity zone investment for at least five years, the basis of his or her investment is increased by 10% of the deferred gain.

If an investor holds a qualifying opportunity zone investment for at least seven years, the basis of his or her investment is increased by an additional 5% of the deferred gain.

If an investor sells or exchanges a qualifying opportunity zone investment after holding it for 10 years or more, the investor may realize no gain on his or her opportunity zone investment. 

WHICH INVESTMENTS QUALIFY FOR THESE BENEFITS?

Opportunity Zone Investments must be made using Qualified Opportunity Zone Funds (QOFs).

A QOF can be organized as a corporation or a partnership, and 90% of the QOF’s investments must be in qualified opportunity zone property (Zone Property).

Hodgson Russ is prepared to advise on all aspects and facets of Opportunity Zone investments, including QOFs, Zone Property, and other issues involving tax, tax policy, real estate, investment management, business management, entity formation, QOF maintenance and due diligence, and more.

If you have further questions, please contact a member of our Opportunity Zones Practice.

Opportunity Zones Explorer by Enterprise Community Partners