The Opportunity Zone program offers tax benefits to investors making qualified investment in designated Opportunity Zones. The investment, made through Opportunity Funds, is eligible for deferred and eliminated capital gains tax.
A taxpayer with realized capital gains must invest those gains within 180 days into a Qualified Opportunity Fund (QOF). The QOF then must deploy 90% of the funds into a qualified opportunity zone property or businesses within six months.
Opportunity Funds are a new class of investment vehicle that must be organized as a corporation or a partnership.
The funds will specialize in attracting investors with similar risk/reward profiles to aggregate and deploy their capital in rural and low-income urban communities. Opportunity Funds will be comprised of private capital and guided by market principals. The funds must invest 90% of their assets in opportunity zone assets. Funds may invest in opportunity zones via stock, partnership interests, or business property.
Fund assets must create new business activity. If invested in an existing business, the fund must double the investment basis over 30 months. The funds can create new businesses, or new real estate or infrastructure. Funds may not be invested in certain types of business like golf courses, country clubs, gambling establishments, and a few other specifically excluded types of business.
In June 2019, an individual investor in the highest tax bracket sells 1,000 shares of XYZ stock that the individual purchased in 2013 for $250,000. The sale at $1,250 per share results in a $1 million capital gain. Instead of paying the $238,000 in Federal income tax on this sale, the individual invests $1 million into a QOF within 180 days. The investment in the QOF must be an equity investment. The QOF invests the capital in newly issued preferred stock shares of various operating businesses located in Opportunity Zones. The individual plans to sell the QOF in 2030. The value of this investment in 2030 is $2.5 million. The benefits received by this investor include:
To qualify for the investor benefits described above, a QOF must:
There are additional requirements for Qualified Opportunity Zone Businesses and qualifications for Qualified Opportunity Zone Business Property that must be met under the statute and regulations.*source: The White House Opportunity and Revitalization Council