Opportunity Zones

History of Opportunity Zones

The Opportunity Zones program was established by Congress in the Tax Cuts and Jobs Act of 2017 as an initiative to spur long-term private sector investments in low-income urban and rural communities nationwide.  

The Opportunity Zones program is based on the bipartisan Investing in Opportunity Act,which was sponsored by Senators Cory Booker (D-NJ) and Tim Scott (R-SC) and Representatives Ron Kind (D-WI) and Pat Tiberi (R-OH), who led a coalition of nearly 100 congressional co-sponsors.

What are Opportunity Zones?

Opportunity Zones are low income census tracts that were nominated by governors and certified by the U.S. Department of the Treasury.  Under the program, investors can now put capital to work financing new projects and enterprises in these Zones in exchange for certain federal capital gains tax advantages. There are now over 8,700 Opportunity Zones in the US in every state and territory.

What are Opportunity Funds?

Opportunity Funds are private sector investment vehicles that invest at least 90 percent of their capital in Opportunity Zones.  Opportunity Funds provide investors with an opportunity to put capital to work rebuilding the nation’s left-behind communities. The fund model enables a broader array of investors to pool their resources in Opportunity Zones, increasing the scale and diversity of investments going to underserved areas.

What are the tax incentives that encourage long-term investment in opportunity zones?

The Opportunity Zones program offers investors the following tax incentives for putting their capital to work in Opportunity Zones:

  • A temporary tax deferral for capital gains reinvested in an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the Opportunity Zone investment is sold or December 31, 2026.

  • step-up in basis for capital gains reinvested in an Opportunity Fund. The basis of the original investment is increased by 10% if the investment in the qualified Opportunity Zone Fund is held by the taxpayer for at least 5 years, and by an additional 5% if held for at least 7 years, excluding up to 15% of the original gain from taxation.

  • permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified Opportunity Zone Fund, if the investment is held for at least 10 years. (Note: this exclusion applies to the gains accrued from an investment in an Opportunity Fund, not the original capital gains).

 

Investing in Opportunity Zone Funds

Although the potential tax benefits associated with an investment in a qualified Opportunity Zone Fund can be very attractive, a potential investor should not overlook the underlying investment strategy(ies), the portfolio of projects being offered in the Fund and the experience of the Fund Manager and / or Developer.  Ultimately, the performance of the investments, Fund and Fund Manager / Developer are going to determine compliance with the Program and the total return on investment (net of the tax benefits).

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Neither this web-site nor any of its content is an offer or a solicitation to invest in any security or any company and does not form part of any solicitation or offering that may exist now or in the future. The content is provided for general information purposes only and is not intended to solicit the purchase of securities or to be used as investment, legal or tax advice. Security offerings, if any, will only be made pursuant to exemptions from registration requirements set out in applicable securities laws. The content of this document is qualified in its entirety by any offering memorandum and related operating agreement that may exist now or in the future. Prospective investors are urged to consult with their own investment, legal and tax advisors prior to making any investment.

 

*Deductibility, tax benefits and returns will vary for each investor based upon their specific circumstances.  Deductions are open to challenge / review by the IRS and may be subsequently reduced/adjusted, which may impact the return of and/or return on the investment. This document may contain “forward-looking” information or statements.  There can be no assurance that such statements will be accurate and actual results and future events could differ materially from those anticipated in such statements.