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Real Estate

Qualified Opportunity Zones

Explore the transformative potential of investing in Qualified Opportunity Zones (QOZs). Discover how you can contribute to America's underserved communities while enjoying significant tax benefits.

What You Need to Know About the Opportunity Zone Program

The Opportunity Zone (OZ) program, introduced in 2017 as part of the Tax Cuts and Jobs Act, is an initiative designed to spur investment in America's underserved communities. By offering enticing tax incentives, the program encourages investors to channel capital into the 8,764 designated low-income neighborhoods across the United States, fostering economic growth and revitalization. These zones were selected based on 2010 census data and are recognized by local governments in partnership with the U.S. Treasury, marking a collaborative effort to uplift areas in need.

How to Invest in Qualified Opportunity Funds

Investing in an Opportunity Zone requires an investment through a Qualified Opportunity Fund (QOF). This is a vehicle established by the OZ program legislation for directing investment into eligible real estate and businesses within these zones. The IRS outlines specific criteria for an entity to certify as a QOF.

1
Must create an entity and file taxes as a partnership, corporation, or LLC
2
Be organized under U.S. laws for investing in Qualified Opportunity Zone property
3
Keep at least 90% of its assets in such property

By meeting these conditions, investors can leverage their taxable gains into meaningful contributions to economic development in underserved areas, while also positioning themselves to benefit from the OZ program's tax benefits.

Tax Advantages

Defer Capital Gains

Investors have 180 days from the realization of a taxable gain to invest in a QOF and can defer recognition of this gain until December 31, 2026. Proposed laws aim to extend this deferral period until December 31, 2028.
Defer Capital Gains

Eliminate Future Capital Gains

For investments held for over 10 years, investors will owe no capital gains tax on the appreciation of their new investment, promoting long-term community investment and development.
Eliminate Future Capital Gains

Enhanced Returns

The combination of deferral, reduction, and elimination of capital gains tax can significantly enhance after-tax returns for investors.
Enhanced Returns

What Are Eligible Proceeds for QOZ Tax Benefits?

1
Stocks, bonds, options, hedge funds
Stocks, bonds, options, hedge funds
2

Primary and secondary residences

Primary and secondary residences
3

Businesses, machinery, commercial buildings, rental properties

Businesses, machinery, commercial buildings, rental properties
4

Land, livestock, art, wine, automobiles

Land, livestock, art, wine, automobiles

Important Deadlines to Remember

180 Days

A taxpayer has 180 days from recognizing a capital gain to invest in a QOF to qualify for tax incentives

10 Years

The investor must hold the interest in the QOF for at least 10 years to qualify for elimination of taxation on gains related to appreciation of the investment

Dec 31, 2026

End of the legislated deferral period (taxes on deferred gains must be paid no later than tax year 2026)

Key Comparison of QOFs vs. 1031 Exchange

There are key differences with investing in a QOF vs. a 1031 exchange.

1031 Exchange
QOF
Only allow for the reinvestment of proceeds from real estate sales
Allows for the reinvestment of capital gains from various assets
Must identify a replacement property within 45 days or use a qualified intermediary
Must identify a replacement property within 180 days to reinvest their gains
Requires reinvesting both the original investment and the gains into a similar asset
Only requires reinvesting the gains, allowing investors to keep their original investment
Allows gains to be reinvested anywhere
Investments are limited to specific census tracts

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