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Masami Hibino

What is an Opportunity Zone? How can I take advantage of it?

There has been a lot of buzz lately about Opportunity Zone investing. Our clients are asking to be educated on this. Could you give us a small primer on it? What is it? How does it work? Why should it be in the mind of investors?

Answers

Marko Issever
December 27, 2018 10:40 AM  Marko Issever

According to Internal Revenue Service published definition, an Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service. They were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017. They have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories. They are designed to spur economic development by providing tax benefits to investors. They are a great tool for investors seeking tax benefits. Because the are expected to spur economic development the law allows investors to defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. For additional information, your investors should visit Treasury.gov and IRS.gov.

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