Opportunity Zones - Tax Savings Opportunity
By: Moshe B. Genet - November 27, 2018
Opportunity Zones – Tax Savings Opportunity
You may have recently heard the buzz about opportunity zones. The opportunity zone program was created under the Tax Cuts and Jobs Act of 2017 and signed into law by President Donald Trump on December 22nd of that year. An opportunity zone is an economically distressed community where investments, under certain conditions, can be eligible for preferential tax treatment. Opportunity zones were designed to encourage investment in distressed communities by furthering economic development and job creation.
This new tool spurs investment in distressed areas by providing enormous tax benefits to its investors. An interested investor can set up a qualified opportunity fund (QOF) which is an investment vehicle that is set up as either a partnership or corporation to specifically invest in properties located in qualified opportunity zones. A QOF must invest 90% of their funds in opportunity zones to receive tax benefits. By using a QOF, an investor can defer taxes on any prior gains until the earlier of the date on which the investment is sold or exchanged or December 31, 2026.
- If QOF held for longer than 5 years= 10% exclusion on deferred gain
- If QOF held for longer than 7 years= 15% exclusion on deferred gain
- If QOF held for longer than 10 years= may qualify to increase their basis to the fair market value of the investment on the date it is sold
A detailed list of national qualified opportunity zones can be found online at https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx. There are numerous opportunity zones located in the state of Florida, with some being in Miami, Broward and Palm Beach county. The governor of each state nominated eligible census tracts as opportunity zones and submitted their nominations to the U.S. department of the Treasury. These opportunity zones were nominated using statistical models that factored poverty levels, unemployment rates and population density.
Recently Proposed Regulation
On October 18, 2018, the Treasury Department released proposed regulation that sought to clarify that almost all capital gains invested in opportunity zones qualify for deferral. In a partnership, the partnership or the partners can elect the deferral. These rules also apply to other pass-through entities and estates and trusts.
If you are interested in learning more about opportunity zones, please feel free to reach out to the experienced attorneys of Morris Law Group.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.