The Opportunity Zone Incentives Program was created to encourage investments in economically-distressed communities. To accomplish this, each state, the District of Columbia and five U.S. territories have designated “opportunity zones” within their respective boundaries. Once an opportunity zone has been located, any eligible taxpayer (individuals, partnerships, C-corporations, S-corporations, trusts, estates, REITS or RICs) can invest certain realized capital gains in that opportunity zone through a Qualified Opportunity Fund (QOF). The opportunity zone incentives can provide investors the opportunity to defer or even eliminate capital gains taxes by investing in a QOF.
The Location of Opportunity Zones
According to the IRS, there are more than 8,700 census tracts that have been designated as a Qualified Opportunity Zone.
Tax Benefits of Investing in a Qualified Opportunity Zone
There are several tax benefits to be gained from making a qualified investment in an opportunity zone through a QOF, including:
- Deferral of original qualified gain until 2026
- A potential 15% basis step-up against that deferred gain (effectively reducing the deferred gain amount) if the investment was made by the end of 2019 and is held for 7 years
- For investments made in 2020 and 2021 and held for 5 years, the potential basis step-up reducing the deferred gain amount is 10%
- The ability to exit an investment in a QOF (via an equity or asset sale) after 10 years without paying any tax on the investment’s appreciation
How Eide Bailly Can Help
Understanding how to take advantage of the Opportunity Zone Incentives program can be overwhelming and confusing. Eide Bailly can help.
The Eide Bailly Opportunity Zone Team consists of professionals with expertise in community development, construction, real estate, finance and tax. They can:
- Provide guidance on how to form and operate a QOF
- Help verify that all requirements are met for the Qualified Opportunity Zone business and business property that will operate within the opportunity zone
- Help you take advantage of the significant tax benefits associated with investing in economically distressed areas of our communities