What is An Opportunity Zone

Since the passage of the Tax Cut and Jobs Act passage last December I’ve been hearing the term ‘opportunity zone’. I did not know much about what they were so decided to do some digging to see what they were, and the opportunities they provided to real estate investors.

The basic premise of the creation of opportunity zones was to reduce or eliminate capital gains tax to attract private capital to invest in low-income areas around the country. Unlike a typical 1031 exchange, investors did not have to sell ‘like kind’ assets to invest in opportunity zones. That means someone could sell art, equities, antiques and invest in an opportunity zone.

Investors are flocking to newly created opportunity zone funds which allow them to re-leverage already appreciated assets into relatively stable investments with huge potential to growth.

As always, there is fine print - one particular detail that caught my eye I copied below:

• Shareholders who keep their reinvested capital gains in an Opportunity Zone fund for five years will pay no taxes on 10 percent of the gains. After seven years, 15 percent of the gains will not be taxed. Separately, shareholders who hold investments for 10 years have the added benefit of eliminating taxes on gains earned from that qualifying fund after 10 years.

Also, since state and local governments designate where their opportunity zones are, remember that all are not created the same and investors should still perform the same due diligence that they would with any other real estate investment.

You can read more about opportunity zones below:

“Increasing Number of New Real Estate Funds Target Opportunity Zones”

Happy Investing!

John Alden