Background Info

  • Opportunity Zones are a bipartisan provision of the Tax Cuts and Jobs Act of 2017 championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ).

    The legislation is designed to encourage & incentivize investors to redeploy and invest capital into low-income communities.

    "Opportunity Funds" managed by professionals are currently being formed for the purpose of investing directly into low-income communities designated Opportunity Zones. Individuals may also form, fund and self manage an Opportunity Fund via a straightforward "self-certification" process.

    Opportunity Zones have no detrimental effect on state or local tax revenue. The goal is to increase investment in low-income communities to solidify and strengthen the state and local tax base!

What are the Tax Incentives for Investors?

  • 1. Temporary Tax Deferral: An investor may defer recognition of income associated with any current capital gains realized (but not yet recognized for federal tax purposes by the private investor) that are reinvested into an Opportunity Fund.

    2. Basis Step-Up: An investor is granted a step-up in the basis of any current capital gains reinvested into an Opportunity Fund. The private investor's basis in his or her original investment is increased by ten percent (10%) of the amount of the unrecognized capital gain if the Opportunity Fund investment is held for a minimum of five (5) years, and fifteen percent (15%) if the investment is held for a minimum of seven (7) years. The effect of the step-up in basis is to reduce the amount of the re-invested capital gain that is subject to tax.

    3. Permanent Exclusion: Long term investments in Opportunity Funds are encouraged because private investors are granted a permanent exclusion of any future capital gain income realized upon the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least ten (10) years. Thus, in such a case, a private investor would be permitted to exclude the entire amount of gain an investment accrues after the initial investment is made into the Opportunity Fund.

Assets Eligible for Investment

  • Real estate and businesses (i.e., LLCs, corporations, partnerships, etc.) located in Opportunity Zones are generally eligible for investment. Federal Treasury Regulations provide additional detail about qualifying investments, however, generally:

    Opportunity Funds may generally hold an interest in real estate located in Opportunity Zones (either directly or through business entities) and develop real estate properties.

    Opportunity Funds may generally invest in for-profit entities located in Opportunity Zones (for example, start-up technology companies in business accelerators or incubators).

    Investments must meet certain "substantial improvement" requirements the details of which are set forth in the Federal Treasury Regulations.

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