Qualified Opportunity Zones: What Investors Should Know

Interested in qualified opportunity zones but not sure where to start? There is a lot to know and understand, so let’s break it down to the basics. Here’s what every investor should know:

What is a qualified opportunity zone (QOZ)?

An Opportunity Zone is an economically distressed community, nominated by the state and certified by the Treasury Department, where new investments (under certain conditions) may be eligible for preferential tax treatment. There are approximately 8,700 zones nationwide located in all 50 states; Washington, D.C.; and U.S. territories.

How does it work?

To qualify for a capital gains tax deferral, a taxpayer has 180 days from the date of sale or exchange of appreciated property to invest the realized capital gain into a Qualified Opportunity Fund (QOF). The fund then buys a QOZ property. It is important to note that an OZF cannot hold investor funds for more than six months before investing them in a QOZ. Also, a fund's financial affiliates cannot own more than 20 percent of the fund. For example, if someone sells land or property to a QOF in exchange for shares, they can only own 20 percent of the fund.

What is a Qualified Opportunity Fund (QOF)?

A Qualified Opportunity Fund is any investment vehicle that is organized as a corporation or a partnership for the purpose of investing in a Qualified Opportunity Zone property. Similar to other investments, an investment in a Qualified Opportunity Fund may increase or decrease in value over the holding period.

What is a Qualified Opportunity Zone (QOZ) property?

A Qualified Opportunity Zone property is defined as QOZ stock, QOZ partnership interest, or QOZ business property acquired after December 31, 2017, and used in a QOZ trade or business, or ownership interest in an entity (stock and partnership interests) operating with such tangible property.

What are the tax benefits of investing in a Qualified Opportunity Zone?

Profits from the sale of any investment asset – stocks, businesses, or real estate – invested in a QOZ are fully deferred until the end of 2026. If the QOZ investment is held for five years, the investor receives a 10 percent increase. While capital gains from QOZ investments held for at least ten years are completely exempt from capital gains tax.

If investing before the end of 2021 wasn’t an option, don’t despair, you can still benefit from investing in a QOZ. 

Contact us to learn more now and consider all your options for 2022.

 *Important Notice: OZ FundHub is not a licensed tax, accounting, or financial firm. All Information contained is for educational purposes only.*