What is a Qualified Opportunity Zone?
The Tax Cuts and Jobs Act of 2017 created Qualified Opportunity Zones, which are economically-distressed areas designated by the government that provide certain tax benefits to investors in an effort to spur economic development and job creation.
How were Qualified Opportunity Zones created?
The governor or chief executive of every U.S. state and territory nominated up to 25 percent of their low-income census tracts to be certified by the Secretary of the Treasury as Qualified Opportunity Zones.
Where are Qualified Opportunity Zones located?
To view a map of all designated QOZs, click here.
- To view all designated QOZs, click on the “Layers” tab on the menu on the right-hand side of the screen. Select “Opportunity Zone Tract” and unselect “2011-2015 LIC Census Tract,” and zoom in to a specific area on the map. Designated QOZs will appear in blue. (Please note that if other layer options are selected, it will change the colors of the tracts.)
- To view a specific census tract, enter the tract number in the search bar, select “2011-2015 Census Tract” by clicking on the mailbox symbol on the left of the search bar, click search, and select the census tract number that appears in the results below.
- Additional guidance on visualizing designated QOZs can be found in this user guide.
To view a list of designated Qualified Opportunity Zones, click here. This spreadsheet was updated on December 14, 2018.
Are the designated Qualified Opportunity Zones final?
Yes. Each State nominated the maximum number of eligible tracts, per statute, and these designations are final.
What is the purpose of Opportunity Zones?
Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
What is a Qualified Opportunity Fund?
A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
How does a corporation or partnership become certified as a Qualified Opportunity Fund?
In order to become a Qualified Opportunity Fund, you must file Form 8996 with the IRS to self-certify as a Qualified Opportunity Fund and hold at least 90% of the fund’s assets in Qualified Opportunity Zone Property.
Can a limited liability company (LLC) be an Opportunity Fund?
Yes. An LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can organize as a Qualified Opportunity Fund.
What are the tax benefits available to individuals that invest in Qualified Opportunity Funds?
First, an investor may defer paying taxes on capital gains until December 31, 2026 if the capital gains are invested in a Qualified Opportunity Fund.
Second, if capital gains are invested in a Qualified Opportunity Fund for at least five (5) years, the investor receives a tax basis increase of 10%, meaning only 90% of the capital gains is taxed. The tax basis is increased to 15% if the capital gains are kept in the Qualified Opportunity Fund for at least seven (7) years. In order to realize the full benefit of the 15%, an investor must invest by the end of 2019.
Further, if the capital gains are left in a Qualified Opportunity Fund at least ten (10) years, then the investor will not pay capital gains tax on any appreciation of the asset.
Do I need to live in an Opportunity Zone to take advantage of the tax benefits?
No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.
What types of capital gain may be invested in a Qualified Opportunity Fund?
Any type of capital gain may be invested in a Qualified Opportunity Fund, including, real estate, stock, cryptocurrency, artwork, etc. An investor must reinvest capital gains into a Qualified Opportunity Fund within 180 days in order to qualify.
What can a Qualified Opportunity Fund invest in?
The policy enables funds to be responsive to the needs of different communities, allowing for investment in operating businesses, equipment, and real property. For example, funds can make equity investments in new or expanding businesses by purchasing original-issue stock of the company if substantially all of the company’s tangible property is and remains located in an Opportunity Zone. Funds can take original interests in partnerships that meet the same criteria. Funds can also invest directly in qualifying property, such as real estate or infrastructure, if the property is used in the active conduct of a business, and if either the original use of the property commences with the fund or the fund substantially improves the property by investing at least as much as the investor’s basis in refurbishments.
Can an Opportunity Fund invest in multiple Opportunity Zones?
Yes. An Opportunity Fund must invest at least 90 percent of its assets in qualified Opportunity Zone property, whether in one zone or across multiple zones.
What is a Qualified Opportunity property?
Qualified Opportunity Zone Property is used to refer to property that is qualified opportunity zone stock, a qualified opportunity zone partnership interest, or a qualified opportunity zone business property acquired after December 31, 2017, used in a trade or business conducted in a Qualified Opportunity Zone or ownership interest in an entity (stock and partnership interests) operating with such tangible property. Click here for more details.
Can I invest my capital gains directly in an Opportunity Zone business or property, without going through an Opportunity Fund, and qualify for the tax incentives?
No. In order to qualify for the tax incentives, investors must invest through a qualified Opportunity Fund.
I sold some stock for a gain in 2018, and, during the 180-day period beginning on the date of the sale, I invested the amount of the gain in a Qualified Opportunity Fund. Can I defer paying tax on that gain?
Yes, you may elect to defer the tax on the amount of the gain invested in a Qualified Opportunity Fund. Therefore, if you only invest part of your gain in a Qualified Opportunity Fund(s), you can elect to defer tax on only the part of the gain which was invested.
How do I elect to defer my gain on the 2018 sale of the stock?
You may make an election to defer the gain, in whole or in part, when filing your 2018 Federal Income Tax return. That is, you may make the election on the return on which the tax on that gain would be due if you do not defer it.
How can I get more information about Opportunity Zones?
Over the next few months, the Treasury Department and the Internal Revenue Service will be providing further details, including additional legal guidance, on this new tax benefit. More information will be available at Treasury.gov and IRS.gov.
Disclaimer: This information is provided to our clients and other friends for educational purposes only. CrowdEngine is not guaranteeing any information as reliable or accurate, and that it’s subject to change at any time. It should not be construed or relied upon as legal advice. Please contact your accountant and or lawyer with respect to any of the matters discussed here.
This post was written by Lanli Pham on April 1, 2019
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