“A Qualified Opportunity Zone is a census tract of low-income areas nominated by the state and certified by the Secretary of US Treasury, via delegation of authority to the Internal Revenue Service”
| Qualified Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017. It’s a tool that was created and designed to spur economic development and job creation in distressed communities. An Opportunity Fund is an investment vehicle that invests at least 90% of its holdings in real estate, businesses, partnership interests, etc. within a Qualified Opportunity Zone. Investments in Qualified Opportunity Zones through an Opportunity Fund, could give investors substantial capital gains tax advantage. Timeline showing after-tax potential benefits|
According to Brookings Institute there are more than 8700 US Census Tracts designated as Opportunity Zones, out of which 19% are in already gentrifying areas. This is a such a transformative opportunity for communities, investors, developers, businesses and governments alike, that Non-Conforming states like California have changed their rhetoric, and Governor Newsom who recently took office in January 2019, has addressed the issue of federal conformity related to Opportunity Zones in his proposed budget for 2019-2020. It reads, “The state will also make EIFDs (Enhanced Infrastructure Financing Districts), a more attractive economic tool by pairing them with the federal Opportunity Zones program. To make Opportunity Zones more effective, the state will conform to federal law allowing for deferred and reduced taxes on capital gains in Opportunity Zones for investments in green technology or in affordable housing, and for exclusion of gains on such investments in Opportunity Zones held for 10 years or more.”
As Investments in Qualified Opportunity Zones offer Capital Gains Tax Deferral, Reduction and even Elimination, it has spurred massive interest in the passive investor community and investors seeking 1031 Exchange. To avail maximum benefit and ensure investment security, one needs to do thorough due diligence of the actual underlying project, before investing in an Opportunity Fund and always consult a tax professional.
What is Capital Gain?
Capital Gain is a rise in value of a capital asset giving it a higher value than the purchase price. The gain is realized when the asset is sold and, a taxable event is triggered.