Looking for information or experiences with Opportunity Zone

[David Krulac]

Saw a SF house for sale in an Opportunity Zone.  Is OP still available?  Does it expire the end of this year like other parts of the tax law?  Anybody have experiences with Opportunity Zones, both good and bad?  Was it worthwhile for you?  Thanks in advance.

[Jason Zundel]

The Opportunity Zone (OZ) program provides for three tax incentives:

• - The deferral of tax on capital gains until the earlier of December 31, 2026, or the disposition of the investment
• - A 10% exclusion of previously deferred gain if the investment is held for at least five years before the deferred gain is recognized; and an additional 5% exclusion (15% total) if the investment is held for at least seven years before the deferred gain is recognized
• - A complete exclusion of tax on the appreciation of an investment if it is held for at least 10 years

That last one is key because the current laws are set to expire at the end of 2026, as noted in the first bullet point.  The next two years will be crucial for OZ investors to plan for the impending tax liability that will become due when the deferral period ends.

Now, the gain originally deferred will preserve its tax attributes until it is recognized, so if you wait too long you will lose all benefits. While there's a chance the OZ tax provisions are extending, we aren't seeing enough momentum to really rely on that. So, if a short-term capital gain is originally deferred with an Opportunity Zone investment, it will be recognized as short-term capital gain when included in taxable income as of December 31, 2026.

It’s also important to consider that a valid deferral election is required to make a qualifying Opportunity Zone investment; otherwise, the investment receives no tax benefits, including the exclusion of tax on the appreciation of the investment.  Two years seems like some time, but real estate investors know this goes by in a flash.

Here are some pretty great links to further information and depth as well: https://www.irs.gov/credits-deductions/opportunity-zones-fre...

https://www.irs.gov/credits-deductions/businesses/opportunit...

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.