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Tax Benefits of Investing in Qualified Opportunity Zones

07/26/2018  |  By: Jeff Talley, CPA, Shareholder, Tax Services

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Real Estate Investors have an opportunity for temporary and permanent tax deferral

Qualified Opportunity Zones are a newly created vehicle that may allow the prudent real estate investor to leverage more of their dollars in a tax advantageous investment.

What are Opportunity Zones?

An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.

  • Certain designated localities qualify
  • These localities must be nominated by their state
  • The state nominations must be certified by the secretary of the U.S. Treasury

Check out EIG's interactive map of Opportunity Zones (Explore the Map)

What’s an Opportunity Zone's purpose?

Opportunity Zone’s were added by the recently passed Tax Cuts and Jobs Act on Dec. 22, 2017, to spur economic development.

  • Opportunity Zone’s are new! No relation to prior economic incentives.
  • They are designed to encourage long-term investments in low income urban and rural communities nationwide.
  • Opportunity Zone’s motivate economic development by providing tax benefits and incentives to investors.

What are the tax benefits of an Opportunity Zone?

Through an investment vehicle known as an Opportunity Fund, Opportunity Zone’s provide for both temporary and permanent tax deferral for eligible investors.

  • Investment in an Opportunity Fund provides temporary deferral from other investments without immediately triggering recognition of those gains. The deferred gain must be recognized on the earlier of the date on which the EO investment is sold or Dec. 31, 2026
  • Opportunity Zone’s provide permanent deferral on capital gains if the opportunity fund is held for at least 10 years. The exclusion only applies to gains accrued AFTER an investor makes his/her investment in an Opportunity Fund.
  • A qualified Opportunity Fund is a privately managed investment vehicle created as either a partnership or corporation for the purpose of investing in qualified opportunity zone property.

Opportunity Zone’s provide a very tax efficient vehicle for those investors looking to reinvest their current unrealized gains in economically distressed communities and thus escape tax through temporary and/or permanent deferral.

Understanding tax reform and how the changes will affect your business and you as an individual can be challenging with opportunities left on the table.  Be sure you consult with a tax advisor who has deep expertise in the multifaceted law and all its nuances.

For a more detailed look at Opportunity Zone options click here, or contact Jeff Talley at jtalley@lbmc.com or 615-377-4600.  

Posted in: Tax