The Opportunity Zone Incentive was passed as part of the Tax Cuts and Jobs Acts of 2017. A Qualified Opportunity Zone (QOZ) was passed to garner economic growth and to create jobs in lower distressed communities.Section 45(D) of QOZ has the following qualification factors:
• poverty rate of at least 20%, or
• a median family income that does not exceed 80% of area median income, or
• Contiguous with a designated low-income community and the median family income does not exceed 125% of the median family income of the contiguous designated low-income community.
The Opportunity Zone Incentive has three federal tax incentives to drive investment in QOZs:
1. Gains reinvested directly in a QOZ, or through an investment vehicle known as a Qualified Opportunity Fund (QOF), are deferred until the earlier of either the sale of the investment or December 31, 2026.
2. The basis of any investment in a QOF held for at least five years is increased by an amount equal to 10% of the amount of gain deferred under the Opportunity Zone Incentive. If the investment is held for at least seven years, there is an additional 5% basis increase.
3. If a qualifying investment is held for at least ten years, any built-in appreciation during the life of the qualifying investment is excluded from income.
In consideration of the potential significant tax benefits, individuals and entities with recent large gains may want to consider participating in the Opportunity Zone Incentive. 90% of the assets of a QOF must be held in businesses located or property used in a QOZ. Investors must roll gains from prior investments into a QOF within 180 days of realizing such gain to be eligible for the investment tax benefit in distressed communities.
There are many more details on the Opportunity Zone Incentive.
Lists and maps of QOZs and other resources regarding opportunity zones can be found at: www.cdfifund.gov/pages/opportunity-zones.aspx.
Call Team Arizona for more details if you are interested in opportunity.