Created as part of the Tax Cuts and Jobs Act of 2017, Opportunity Zones (OZ) are a federal tax incentive designed to incentivize investors to reinvest capital gains in economically distressed communities, thereby stimulating economic development and job creation. Investors will be able to defer, reduce and potentially eliminate certain federal capital gains taxes by investing their capital gains into Qualified Opportunity Funds.
- Deferral– No up-front tax bill on the rolled-over capital gain and investors can defer their original tax bill until the earlier of a) December 31, 2026, or b) the sale of the Opportunity Zone investment.
- Reduction of tax on the rolled-over capital gain investment for long-term holding. A 5-year holding increases the rolled-over capital gains basis by 10%, and a 7-year holding increases the rolled-over capital gain investment basis 5%, for a total of 15%.
- Tax-free appreciation– If an Opportunity Fund investment is held for ten years, the taxpayer pays no capital gains tax on the appreciation.