Opportunity Zone Information

With so many questions floating around about Opportunity Zones, we have the answers to several of them!

 

Who Opportunity Zone Benefits Apply To:

  • Any person or entity with a capital gain that would be recognized prior to 12/31/2026 who, within 180 days of the capital event, invests the capital gain into an “Qualified Opportunity Fund”

 

Opportunity Zone Benefits:

  • Gain Deferral: An investor who rolls their capital gain into a “Qualified Opportunity Fund” can defer recognizing their gain until the earlier of 12/31/2026 or the time the they sell their interest in the fund.
  • Gain Exemption: If an investor holds their gain in the “Qualified Opportunity Fund” for 5 years, 10% of the gain deferred will not be subject to tax; If the investor holds their interest in the fund for 7 years (and additional 2 years), an additional 5% of the gain is not subject to tax when it is later recognized (total of 15% gain exemption for a 7-year hold).
  • Appreciation Exemption: If an investor holds their gain in the “Qualified Opportunity Fund” for 10 or more years, any appreciation on the gain originally invested in the fund will not be subject to tax when the investor disposes of their interest in the fund.

 

Requirements to Qualify for the Opportunity Zone Benefits:

  • An investor must invest their eligible capital gains into a “Qualified Opportunity Fund”
  • An “Qualified Opportunity Fund” is an entity (partnership or corporation) that holds at least 90% of its assets in “Qualified Opportunity Zone Property”
  • “Qualified Opportunity Zone Property” can consists of certain qualifying subsidiaries (the discussion and requirements of which are beyond the scope of this email) and real or personal property purchased after 12/31/2017 and located in an opportunity zone
  • For real property purchased after 12/31/2017 and located in an opportunity zone to qualify, there must be “substantial improvements” to the real property.
    • For real property to meet this test, the fund must make a capital infusion in the property equal to the value allocated to the basis of the improvements on the property upon its purchase
    • For example, a property is purchased for $1 million dollars. The most recent tax assessor’s report states that 50% of the value on the property is allocated to the land, while the remaining 50% is allocated to the improvements on the land. Thus, to qualify, the purchaser must make a capital infusion of $500k to the improvements on the property.

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