Are You Taking Advantage of This Real Estate Tax Incentive?

[Julio Gonzalez]

What is a Qualified Opportunity Zone (QOZ)?

A QOZ is an economically-distressed community where if certain conditions are met, it may result in deferment of capital gains tax for investors. This tax incentive is part of the 2017 Tax Cuts and Jobs Act and is used as an economic development tool to create jobs and new developments in low income and certain contiguous communities. More than 8,760 communities across all 50 states have been certified as QOZs.

How to invest in an Opportunity Zone?

You can invest in a QOZ through a Qualified Opportunity Fund (QOF). A QOF is an “investment vehicle that files either a partnership or corporate federal income tax return and is organized for the purpose of investing in QOZ property.”

What are the Tax Benefits of an Opportunity Zone?

Investors can temporarily defer eligible gains such as capital gains and qualified 1231 gains if those gains are invested in a QOF in a timely manner (within 180 days). The tax benefits available are dependent on the length of time you hold the investment in the QOF.

• If the investor holds the investment for 5 years, the basis of the QOF investment increases by 10% of the deferred gain.
• If the investor holds the investment for 7 years, the basis of the QOF investment increases by 15% of the deferred gain.
• If the investor holds the investment for 10 or more years, the investor can elect to have a basis adjustment in which the basis of the QOF investment is equal to the fair market value on the date the QOF investment is exchanged or sold, thus reducing the gain on the QOF investment.

Where are the QOZs located?

Here is a list of the QOZ locations from the IRS website: Designated Qualified Opportunity Zones under Internal Revenue Code § 1400Z–2

What opportunity zones are you interested in or already investing in?