New Tax Law Encourages Investments in Qualified Opportunity Zones
The Tax Cuts and Jobs Act passed in December 2017 includes a provision to encourage investment in low income areas designated as Qualified Opportunity Zones. The new tax benefits available to investors in Qualified Opportunity zone property are designed to spur economic development and job creation in distressed communities. Under the new tax law, gain from the sale of property to an unrelated person can be deferred, and to a certain extent permanently excluded, by investing proceeds from the sale of capital gain property in a Qualified Opportunity Fund within 180 days after the sale and making the required election. Gain from the sale of any capital asset, including stock and real estate, can qualify for the exceptions to gain recognition. Qualified gain can be deferred until the earlier of December 31, 2026 or when the QO zone investment is sold or exchanged. Special rules apply to permanent exclusion of gain for investments in Qualified Opportunity Funds.
A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in an Opportunity Zone. At least 90 percent of the assets in the Fund must represent investments in Qualified Opportunity zones. Qualified Opportunity Funds are required to self-certify by attaching a completed a form to the Fund’s tax return. Further guidance is to be provided by Treasury. Qualified Opportunity Zones are approved by the Secretary of Treasury and published by the Community Development Financial Institutions (CDFI) Fund.