The Untapped Potential of QOFs in the Energy Sector

As we near the September 11 Deadline, several investors are seeking out Qualified Opportunity Zones (QOZs) to defer their capital gain taxes. Plus, if investors hold their investment for a decade, it’s possible they won’t pay any capital gains taxes at all. With all the rising interest in Opportunity Zones, there’s been even more interest in aligning QOZ investments with the energy sector, specifically oil and gas. The energy sector has huge potential, and in this article, we’ll explore what that potential looks like. 

Author’s note: If you would like support with your research and due diligence (either now or after reading this article) , you can get exclusive support from one of our Opportunity Zone Advisors. Simply click here to schedule your free no-obligation call.

Current Investment Climate in the Energy Sector

The energy sector has been the subject of increased scrutiny and negative sentiment, which has impacted investment flows. However,  Warren Buffet did say, "be greedy when others are fearful" This could be a good time to heed that wisdom. Plus, the increased scrutiny has actually led some to consider the energy sector as a potential area for new investments. Also, the prospect of deferring capital gains taxes for up to 10 years through QOZs adds another layer to the investment decision. Hence, this scrutiny might be just a smoke screen, making the energy sector worth looking into.

The Role of Oil and Gas in the Short to Intermediate Term

While there is a global push towards renewable energy sources, oil and gas remain integral to current energy needs. This ongoing reliance suggests that there may be a window of opportunity for investments in this sector, especially when combined with the tax benefits offered by QOZs.

Understanding QOF Requirements

For those considering this investment avenue, it's important to be aware of the regulatory requirements. A Qualified Opportunity Fund (QOF) must allocate at least 90% of its assets in Qualified Opportunity Zone properties, which can include various asset types. Additionally, any business property within a qualified zone must meet three specific criteria:

• It must be tangible property used in a trade or business.

• It must be acquired from an unrelated party.

• It must either be an "original use" asset for the QOF or be substantially improved within a 30-month period.

The intersection of QOFs and the energy sector is an area that warrants further exploration. Despite the current public sentiment towards the energy sector, the continued reliance on oil and gas in the near term makes it a noteworthy consideration for QOF investments. As with any investment, due diligence and compliance with regulatory requirements are crucial. If your own Opportunity Zone due diligence has you feeling like you’re on an uncharted island, the door is always open to speak with one of our Opportunity Zone Advisors. Click here to learn more.