You Asked, We Answer: All About OZs
Are you interested in Opportunity Zone investments, and looking to learn more? We’ve curated a list of the top questions we’ve heard from potential...
Designed as an investment vehicle, Opportunity Zone Funds (OZFs) can take a good investment and make it great. The Tax Cuts and Jobs Act, passed in 2017, established the Qualified Opportunity Zone program to provide a tax incentive for private, long-term investment in economically distressed communities.
If you're a beginner investor, you might have a lot of questions surrounding what Opportunity Zone Funds (OZF) really are, or how they even work. In short, Opportunity Zones Funds are communities where new investments, under certain conditions, may be eligible for preferential tax treatment. These types of investments offer an opportunity for investors to defer and potentially reduce taxes on recognized capital gains, while spurring economic growth in low-income communities. In this article, we tackle the most frequently asked questions about OZFs by investors...
How does this OZF investment program work for investors?
Opportunity Zones offer tax benefits to business or individual investors who elect to temporarily defer tax on capital gains (within 180 days from the day sold) if they invest those gain amounts in a Qualified Opportunity Fund for the time frame stated. If you hold until 2026, that means a 10 percent reduction, while a 10-year hold means no federal taxes at all on profits earned on that investment in the fund.
What determines a qualified fund or a qualified zone?
A qualified fund is a vehicle established to invest in eligible businesses and properties located in a qualified Opportunity Zone as determined by the state. To qualify and remain qualified, the fund must self-certify annually using a form attached to its federal income tax return. The fund must tell the IRS both the first tax year and the first month it wants to be treated as a Qualified Opportunity Fund. The fund must also invest at least 90 percent of its assets in an OZ property (also known as the 90/10 test).
What are the tax benefits and savings of OZFs?
1. 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.
2. If the QOF investment is held for five years or longer, they may receive a 10% step-up-in-basis for the deferred gains.
3. If the investor holds the investment in the Opportunity Fund for at least 10 years, the investor pays no capital gains on the appreciation
What's an example of Opportunity Zone Fund project?
OZ Fund investment firm Urban Catalyst located in San Jose, California offers many potential projects for investors including Paseo, an existing transit-oriented building located in the downtown San Jose opportunity zone. Currently under construction, the building is slated to be transformed into a combination of office space over ground-floor retail, ideally located near the VTA light rail station, a popular theater, an arts district, a university, and Fairmont Plaza.
As long as you are able to retain the investment for the noted time frames, OZ funds are a great option for deferral of capital gains while having a positive impact on the community. To learn more about OZ Funds, contact us today.
*Important Notice: OZ FundHub is not a licensed tax, accounting, or financial firm. All Information contained is for educational purposes only.*
Are you interested in Opportunity Zone investments, and looking to learn more? We’ve curated a list of the top questions we’ve heard from potential...
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