Opportunity Zones Can Be Game-Changers

What Are Opportunity Zones?

Well, put simply, they are economically disadvantaged areas nominated by each state’s governor and certified by the US Treasury Secretary. Created by the 2017 Tax Cut and Jobs Act, the zones are designed to spur economic revitalization by offering preferential tax treatment on new investments. With 8,764 such zones designated nationwide, the opportunity here is truly vast.

What Are The Benefits?

The main advantage of opportunity zones to investors is the capital gains tax benefit. Taxpayers are able to defer and potentially reduce tax liability on eligible capital gains by making an investment in a Qualified Opportunity Fund or QOF (basically an approved project within an opportunity zone). Without getting too lost in the weeds, the longer an investor holds onto the investment, the greater the tax benefit. HUD’s website does a good job of laying out the tax incentives in detail here.

Is There Any Catch?

Well, there are a few things to know. It is only your capital gains that receive the tax benefit—not the entirety of your investment if you are committing funds beyond the capital gains. And you are required to make the QOF investment within 180 days of realizing the capital gains. Also, your investment must be in the form of equity and not debt.

How Can I Find A Zone?

It’s easy. Just head to HUD’s interactive map of Opportunity Zones and search by state or territory. Each state has their own site with specific information about investable projects and requirements. Your licensed realtor is also a good resource as they will have access to a searchable database of properties within these zones.

How Do I Choose A Zone?

That’s really a personal decision with some investors preferring to stick with local projects while others going further afield. We did come across an interesting article in the Motley Fool recently in which they identified the opportunity zones with the greatest ROI potential. See why they rank the Anacostia neighborhood in Washington DC at the top of the list.

It's plain to see why Opportunity Zones have the potential to be a powerful, positive force in areas that are struggling to survive. Wherever you decide to invest, consider the location of your next project carefully.