Opportunity Zone Benefits

Opportunity Zones are an economic development tool that allows people to invest in up-and-coming communities. Their purpose is to spur economic growth and job creation while providing tax benefits to investors.

There are two important tax incentives when someone invests in a Qualified Opportunity Fund (QOF):

Deferral of Capital Gains

Any gain treated as a capital gain (including 1231 gains) generated from a sale can be deferred until December 31, 2026 by investing in a QOF. Examples of capital gains eligible for investment in a QOF are: sale of a business, stock sales, and real estate sales.

Tax Free Gain

If an Opportunity Zone (OZ) project is held for a minimum of 10 years, appreciation and gain on the project will be tax free.

Investor Requirements

• Investors have 180 days to invest the gain in a QOF
• If held personally, the investor has 180 days from the date of the sale that triggered the gain
• If the gains flow through a Partnership, S Corporation, RIC, or REIT, the shareholder has 180 days from the passthrough entity’s tax year-end
• Taxpayers can also elect to have the 180-day period begin on the due date of the flow through entity’s return (for calendar year partnership/S-corps, this is 3/15)

Opportunity Zone Investment Timeline Example

Other Tax Benefits of Opportunity Zone Projects

• Significant depreciation deductions over the life of the project
  • Deductions generally equal 100% or more of investor cash investment within 5 years of the building being placed in service – see example project summary below
  • Deductions generally around 3X an investor cash investment over the depreciable life of the building (30 years)
• Losses generated by depreciation can shelter other sources of pass through income for investors on annual basis. Unused losses are also eligible to carry forward to future years
• OZ investors get the same tax benefits from depreciation as any other market-rate project through the life of the deal, however, OZ investors do not need to recapture the depreciation as additional gains on a sale if held for 10 years – presenting a huge tax savings benefit