How to Take Advantage of Opportunity Zone Funds
Are you looking for an investment opportunity with the potential to positively impact your community while also providing you with valuable tax benefits? One dynamic feature of the 2017 federal tax reform bill that you may or may not be aware of is the Opportunity Zone Program. If you anticipate having capital gains from any type of property, this program provides the opportunity to defer and reduce the capital gain by reinvesting the gain in a Qualified Opportunity Fund (sometimes referred to as a “Super 1031 Exchange”).
A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or a corporation for the purpose of investing in eligible property located in newly created Qualified Opportunity Zones. Additionally, a limited liability company that chooses to be treated as either a partnership or a corporation for federal tax purposes may organize as a Qualified Opportunity Fund. Qualified Opportunity Zones are located in all 50 states and areareas in economically distressed communities that each state has identified as a location where new investments may be eligible for preferential tax treatment. The Internal Revenue Service has stated that these Zones are a tool designed to spur economic development and job creation in these communities. You are not required to live, work, or have a business in a Qualified Opportunity Zone to take advantage of the potential tax benefits. Simply choose to invest a recognized gain in a Qualified Opportunity Fund within 180 days of the recognition event, elect to defer the tax on that gain, and you are on your way to realizing the benefits.
The first tax benefit associated with a Qualified Opportunity Fund is that you are able to defer your once-taxable gain until the Fund is sold or until December 31, 2026—whichever is earlier. You may be able to use this deferral to turn short-term gains into long-term gains, which receive preferential tax treatment. If you hold the investment for over five years, you will receive a 10% exclusion on the deferred gain. If you hold the investment for over seven years, the exclusion increases to 15%. If you hold the investment in the Qualified Opportunity Fund for over ten years, you become eligible for an increase in the basis of the investment to its fair market value. This means you typically will not have any recognized gain on the initial investment. Overall, these tax benefits have the potential to be extremely valuable for all types of investors.
While this Program offers exciting opportunities for investors and the communities located within these Zones, it is still in its early stages, and the ins and outs of how exactly to set up the Fund and garner the tax benefits remain complex. New guidance in the form of announcements and regulations is expected to continue to be made available by the IRS and the Treasury Department throughout the coming months. To help you take advantage of these exciting opportunities, our offices are equipped to guide you through every step of the process — including setting up the Qualified Opportunity Fund, drafting any required documents, and assisting you in identifying and acquiring properties located in Qualified Opportunity Zones.
Contact us at (267) 423-4130 to learn more and begin reaping the benefits today.