Real Estate TAx Planning

Opportunity zones are a tax incentive program established by the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income communities. The program provides tax benefits to investors who invest capital gains into opportunity zone funds, which in turn invest in designated opportunity zones.

Investors can defer paying taxes on capital gains invested in opportunity zone funds until the earlier of the date on which the investment is sold or December 31, 2026. Additionally, if the investment is held for at least five years, the investor can receive a 10% reduction in the deferred capital gains tax.  If the investment is held for at least seven years, the investor can receive a 15% reduction in the deferred capital gains tax. If the investment is held for at least ten years, the investor can exclude the appreciation on the investment from the deferred capital gains tax.

To take advantage of the opportunity zone tax benefits, investors must invest in a qualified opportunity fund (QOF) and hold their investment in the QOF for at least 10 years. The QOF is a type of investment vehicle that is organized as a corporation or partnership for the purpose of investing in qualified opportunity zone property.

Some key points to keep in mind while planning on opportunity zone tax planning

• The investment should be made in a Qualified Opportunity Fund (QOF)
• The investment must be held for at least 10 years
• Capital gains tax can be deferred and reduced
• The appreciation on the investment can be excluded from the deferred capital gains tax if investment held for at least 10 years

It is always recommended to consult a tax advisor to understand how this opportunity zone tax planning will impact you, your investment and tax status.