Have a Capital Gain? Consider Investing in Opportunity Zones

Opportunity Zones have been around since December 2017, but why are most people just now finding out about them? Clarity on regulations surrounding this new tax incentive seems to be the answer. The second tranche of regulations were released in April which cleared up significant questions that kept investors and stakeholders on the sidelines.

Click HERE for a map of Opportunity Zones

Opportunity Zones (commonly referred to as “Qualified Opportunity Zones” or “QOZs” or “OZs”) have been considered to be one of the most significant Congress enacted tax incentives in our lifetime that focuses on revitalizing Americas economically distressed communities. And how does Congress entice investors to invest in Opportunity Zones? Through significant tax incentives.

These incentives increase the longer an investment is held with an ultimate benefit of an asset appreciating tax free. Below is an example timeline of investing in a QOZ by way of a Qualified Opportunity Fund (or commonly referred to as a “QOF”).

Example Timeline for Investing

*NOTE: Investors may make investments in a QOF after 2019. This is a common misconception that in order to participate in this incentive, investors must invest by 2019 – this is false. The investor will lose out on the 7 year benefit if investing after 2019 but will still have two years to receive the 5 year benefit. Once the 5 year window closes on this side of 2026, investors may still make investments in a QOF until June 2027 to receive the 10 year benefit – which in many cases is the most significant benefit of the incentive.

Steps to Invest

  1. Sell an asset and realize a capital gain
  2. Elect to roll all (or a portion) of the capital gain into a QOF. Individuals may start their own QOF or roll their capital gains into an already established QOF
  3. Make a qualified investment in an Opportunity Zone by acquiring:
    1. QOZ business stock
    2. QOZ partnership interest, or
    3. QOZ property

Opportunity Zone Investment vs. Non-Qualified Opportunity Zone Investment

* Indicates highest federal capital gains rate for 2019 (investor should consider their respective state capital gains rates as applicable)

** Assumes investment is held for 7 years and a 15% step-up in basis is applied to original capital gain

How to Start a Qualified Opportunity Fund

In order for investors to access the benefits of the incentive, they must flow their capital gains through a QOF. They can do this by 1.) creating their own QOF, or 2.) rolling their capital gains into a pre-established QOF. QOFs are subject to regulations set forth by the Treasury & IRS and many factors needs to be considered when setting up a QOF. We at Opportunity Zone Investments are here to help investors and community stakeholders navigate this process so that the QOF may maximize its potential while giving investors the ease of mind that their QOF is compliant with the regulations.

For more information on our QOF services, please view our Opportunity Fund Services flyer.

If you have any questions regarding the Opportunity Zone incentive, please feel free to reach out to me directly at Kyle@OpportunityZoneInvestments.com or (360) 464-6053. I’d enjoy the “opportunity” to connect.

Kyle Wiese – Founder & Managing Member, Opportunity Zone Investments

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