What are Opportunity Zones?

An Opportunity Zone is an individual census tract nominated by the Governor of that state and certified by the U.S. Secretary of the Treasury as economically distressed. Under specific circumstances, the zone may be eligible for preferential treatment under tax law.

The name of the game is capital gains. First, investors may be able to transfer existing assets into a Qualified Opportunity Fund delay paying taxes on their profit until 2026 or whenever they sell the asset. Next, for anything placed in an Opportunity Fund for five years, the investors’ basis on the original investment is increased by ten percent. For anything set in a QOF for seven years, the investors’ basis on the initial investment is increased by fifteen percent. If an investor holds for ten years, the investor doesn’t pay any taxes on the capital gains produced while in the fund.

Many of the over 8,764 Opportunity Zones in the U.S. have received little investment for many years or even decades. Opportunity Zones act as a financial incentive to spur investment from both the private and public sectors into underserved communities across the country.

Because a Qualified Opportunity Fund can hold the proceeds from any capital asset sale, not just real estate, it is a more flexible alternative to a 1031 exchange.

To find real estate located within an Opportunity Zone or get referrals to tax professionals capable of advising you on Opportunity Zone investment, click here.

Video Transcript:

“How do we increase economic opportunity for all Americans? Through a powerful new tool called Opportunity Zones, which are already helping to revitalize distressed neighborhoods.

In 2017, the Tax Cuts and Jobs Act created Opportunity Zones with the goal of spurring investment and economic opportunity in low-income communities that have been neglected in the past. Governors took the lead in selecting eligible census tracts in their states and territories. This collaboration led to the establishment of 8,764 opportunity zones across the country.

So how exactly do opportunity zones work? Through a capital gains tax incentive, businesses and investors can invest their money to build new housing, retail, grocery stores, schools, offices, and other commercial ventures, bringing an economic boost to distressed neighborhoods designated as opportunity zones.

Unlike previous community investment incentives in earlier decades, anyone can invest in opportunity zones, from large institutional entities to individual taxpayers. Opportunity zones are also designed to serve local communities for the long term. Only investors who commit capital for five, seven, and ten years receive the tax saving rewards. After ten years, taxpayers can receive a permanent tax exclusion in appreciation in their opportunity zone investments. That way, we can prevent the kind of practices that are here today, gone tomorrow, and make sure that new growth and new jobs are here today and here to stay.

These opportunity zones are more than just a simple tax break; they are a powerful tool for bringing economic growth to American communities who need it most. Few initiatives in modern history have the power to improve so many lives as opportunity zones, which are now home to nearly 35 million Americans, including 2.4 million HUD-assisted individuals, in all fifty states, Washington D.C., and five U.S. Territories. That’s roughly ten percent of the country deliberately targeted for revitalization.

For families who live in a designated opportunity zone, this investment may mean greater economic opportunity. Those who are currently struggling or dependent could have the chance to climb the ladder of economic success. Opportunity zones will move these communities forward and create a brighter future, ensuring more Americans share in our economic growth than ever before.”