What is a Qualified Opportunity Zone?
Qualified Opportunity Zones or “Op-Zones” are new with Trumps new tax plan (the Tax Cuts and Jobs Act) in 2017, and they provide preferential tax treatment to anyone following the rules of the IRS code. The aim of Op-Zones is to help direct resources to low-income communities, but since these zones are based on Census tracts, they missed the mark somewhat.
Regardless, investing in Op-zones can provide the following three tax incentives to investors:
1. Deferral of capital gain of funds sold (down-leg) to get into an Op-Zone investment.
2. Possible reduction of the amount of gain realized on funds sold (down-leg) to get into an Op-Zone investment.
3. Possible permanent exclusion of gain on the appreciation for the interest in an Op-Zone investment (up-leg).
In order to invest into an Op-Zone investment, a corporation must be created as the fund (called the Qualified Opportunity Fund), the property or business must be located in the designated location or tract of the Op-Zone, and funds must hold 90% of assets in the zone and are self certified. Presently there is no cap on the amount of money that can be invested into a fund.
Below is a table that outlines the benefits based on the length of time in with the investment in an Op-Zone is held: