One of the many hot new tax breaks in the Trump Tax Plan is Opportunity Zone investments. Unlike the big tax breaks for pass-through entities and C Corporations, these are tax breaks that passive investors can take advantage of. And, boy, are they.
In this article, we’re going to look at what exactly an Opportunity Zone is and what you can do to take advantage of this, maybe even creating your own.
An Opportunity Zone is an economically-distress community where investors can receive tax breaks. The Opportunity Zones are nominated by the state and then certified by the U.S. Treasury. There are such Zones in all 50 states, the District of Columbia and 5 U.S. territories.
Opportunity Zones provide tax benefits to investors, as follows:
- investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.
- If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.
- If held for more than 7 years, the 10% becomes 15%.
- If the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
The list of designated Qualified Opportunity Zones can be found at https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx
If you want to form your own QOF, you’ll first need to have your corporation or partnership certified by filing Form 8996, Qualified Opportunity Fund. An LLC that has elected to be taxed as a partnership or a corporation is eligible.