Investors can get big tax breaks if they invest in ‘opportunity zones’ under new Treasury rules
Our Mobile Home Projects are opportunity fund qualified.
The Tax Cuts and Jobs Act of 2017 (TCJA) has provided additional tax benefits from investing in “Qualified Opportunity Funds.” These funds create a new tax incentive program designed to promote new investment capital into certain low-income and distressed communities throughout the country. They are referred to as Qualified Opportunity Zones. The program enables investors with unrealized capital gains to receive significant tax incentives for investing in these funds.
A Qualified Opportunity Fund is a privately managed investment vehicle, generally formed as a partnership, LLC or a corporation, whose sole purpose of formation is to invest at least 90% of its assets directly invested into a qualified Opportunity Zone property. In addition, the fund must have acquired the property after December 31, 2017.
Qualified Opportunity Zones
Qualified Opportunity Zones are “census tracts” or neighborhoods. For a census tract to be treated as a Qualified Opportunity Zone, the governor of the respective state must identify such communities in writing to the U.S. Treasury Department. The Treasury Department must then certify each community as a Qualified Opportunity Zone. Each zone will maintain it’s designation for 10 years.
Tax Incentives: Under the TCJA there are three specific tax incentives possible for investing in a Qualified Opportunity Zone fund:
Capital Gain Deferral : If an investor realizes any short or long-term gain from the sale or exchange of property, and the capital gain is reinvested in a Qualified Opportunity Fund within 180 days of the sale or disposition of that property the realized gain may be able to be deferred until the earlier of (1) the date of the investment the Qualified Opportunity Fund is disposed of and (2) December 31, 2026.
Elimination of 10% or 15% of the Deferred Gain: 10% of the gain on investments in
Qualified Opportunity Funds may be excluded if the taxpayer holds the interest in the Qualified Opportunity Fund for at least five years. This exclusion may be increased by an additional 5% if the investment is held for at least seven years, thereby eliminating potentially 15% of the original gain from taxation. The exclusion is achieved through a step up in basis in connection with the original gain.
Permanent Exclusion on Taxable Gain: When the interest in the Qualified Opportunity Fund is held for at least 10 years, the taxpayer will not recognize taxable gain on the appreciation in value of the investment in the Qualified Opportunity Fund