What are Opportunity Zones?
Nominated by America’s governors, Opportunity Zones are individual census tracts equal to roughly 20% of each state where investments in businesses or properties may be eligible for preferential tax treatment through Qualified Opportunity Funds.
Where are the Opportunity Zones?
There are more than 8,700 Qualified Opportunity Zones in the United States. In addition, nearly all of Puerto Rico is an Opportunity Zone. Browse our map below to see designated Opportunity Zones across the country.
What are Qualified Opportunity Funds?
Qualified Opportunity Funds are unique investment vehicles that enable investors to take advantage of new tax incentives when investing in businesses and properties located in Opportunity Zones.
Qualified Opportunity Fund Requirements
- Must be certified by the U.S. Treasury Department.
- Must be organized as a corporation or partnership for the purpose of investing in Qualified Opportunity Zone Property.
- Must hold at least 90% of their assets in Qualified Opportunity Zone Property.
- Qualified Opportunity Zone property includes newly issued stock, partnership interests, or business property in a Qualified Opportunity Zone business.
What are the Opportunity Zone Investor Incentives?
Specific tax incentives offered to tax payers that invest their capital gains into Qualified Opportunity Funds are based on the length of time their investment is held. These tax incentives include:
- Capital Gains Deferral
- The taxpayer has 180 days in which to reinvest capital gains into a qualified opportunity fund.
- Reinvesting capital gains allows taxpayers to defer capital gains tax until the “recognition date,” which is the earlier of disposition, or December 31, 2026.
- At the recognition date, the taxpayer must pay capital gains tax on the initial investment at the short- or long-term capital gains rate depending on the types of gains originally invested.
- Step-Up in Basis of the Original Investment
- At the time of investment in the fund, the deferred gain basis begins at zero.
- After five years, the basis increases to 10% of the basis assigned to the invested capital gains, and
- After seven years, the basis increases to 15% of the original basis assigned to the invested capital gains.
- Thus, if the initial investment holding period is five to seven years, the tax liability is reduced by 10% to 15% when payable.
- Capital Gains Exclusion
If a taxpayer holds the investment in the qualified opportunity fund for at least 10 years and meets the original use or substantial improvement qualification, then the taxpayer will not pay capital gains tax on the appreciation of the investment. Long-term investment holding periods through 2047 will result in a step-up of cost basis to fair market value at the taxpayer’s election.