Qualified Opportunity Zones | Develop Advisors
OVERVIEW

The Qualified Opportunity Zones ("QOZs") program is the largest new community development tax incentive program created in a generation, established by the U.S. Congress in December 2017 through the Tax Cuts and Jobs Act.

QOZs were designed to encourage patient, long-term investments in low-income urban and rural communities throughout America by providing a powerful new tax incentive for investors with capital gains in the stock market, real estate, and in other assets to reinvest those dollars into special private investment vehicles called Opportunity Zone Funds.

Funds can be corporations or partnerships, self-certified with the IRS, that are committed to investing at least 90% of their capital into OZs.

Qualified Opportunity Zones were conceptualized in the bipartisan Investing in Opportunity Act, developed through the leadership of Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), and ultimately including nearly 100 Democratic and Republican congressional cosponsors.

In June 2018, the U.S. Department of the Treasury certified over 8,700 census tracts as QOZs  in every U.S. state and territory, designations that will last over a decade through the end of 2028.

Per the Economic Innovation Group, QOZs have an average poverty rate of nearly 31%, an average median family income of only 59% of its area median, contain 1.6 million places of business, 24 million jobs, and 35 million Americans.

According to the Urban Institute, less than 4% of QOZs are at high risk of rapid socioeconomic change, displacement, or gentrification.

CORE QOZ INCENTIVES

Qualified Opportunity Zones offers investors the following incentives for putting their capital to work in low-income communities:

  • Investors who have capital gains, can defer paying their capital gains tax until December 31, 2026, for gains that are reinvested into a qualified Opportunity Zone Fund (think a 401(k)).
  • If investors remain invested in their Opportunity Zone Fund for longer than 5 years, they receive a 10% discount on their original capital gains tax bill, and a total of a 15% discount on their capital gains bill after a 7-year investment.
  • For the most patient investors, those who hold their stake in an Opportunity Zone Fund for 10 years or more, they will pay no capital gains taxes for any appreciation of their investment in the fund for as long as they remain invested in that fund (think a Roth IRA).
FAQ

Qualified Opportunity Zones are low-income communities selected by the Governors of every U.S. state and territory (and the Mayor of DC) where investors receive a powerful tax incentive for their investment into real estate developments, energy and infrastructure projects, and operating businesses.

Develop’s website has a searchable map, compiled from data from the Treasury Department, which you can find HERE.

Qualified Opportunity Zones were created through the research and advocacy efforts of the Economic Innovation group, a Washington, DC-based think tank.  They were a solution to the longstanding crisis of geographic inequality, decline in business creation, and the plight of too many communities left behind.  

Investors in Qualified Opportunity Zones must have capital gains they can roll over into a special investment vehicle called an Opportunity Zone Fund, which can then make investments into Qualified Opportunity Zones.  Investors have 180 days from the sale of an asset to complete their rollover into an Opportunity Zone Fund.

If investors re-invest their capital gains into an Opportunity Zone Fund, they can defer the tax they owe on their capital gains until December 31, 2026, get a discount on this capital gains tax bill of up to 15%, and for holdings in an Opportunity Zone Fund for at least 10 years, investors pay no new capital gains tax on any appreciation on their new investment.

An Opportunity Zone Fund is any investment vehicle organized as a corporation or partnership that invests at least 90 percent of its capital into Qualified Opportunity Zone assets.  Opportunity Zone Funds self-certify with the IRS by completing a form that is attached to their income tax returns.

Opportunity Zone Funds can make equity investments in just about any kind of asset class, as long as they are investing in originally-issued stock in a company, a partnership interest, or business property, such as real estate.   We are seeing interest from investors in commercial and residential real estate, infrastructure and energy assets, operating businesses, start-ups, and much more.

No, the Qualified Opportunity Zones program has no caps, so it can incentivize a virtually unlimited amount of re-investment in low-income communities throughout America.  It has the potential to be a modern day Marshall Plan for America's "domestic emerging markets."