Opportunity Zones: The Opportunity Zone tax incentive was established by Congress in the 2017 Tax Cut and Jobs Act to stimulate long-term, private sector investments in low-income communities. Opportunity Zones (OZs) are limited to Census Tracts and investments in Zones must occur through Qualified Opportunity Funds (QOFs).
The program enables investors with capital gains tax liabilities to receive a favorable tax treatment for making equity investments into eligible OZs business property. OZs community designations sunset in 2028, but investors are able to make the election through December 31, 2047.
Opportunity Funds: Opportunity Funds (OFs) are the investment vehicles organized as corporations or partnerships for the purpose of investing capital gains into OZs. Investors in OFs are eligible to receive tax deferral and permanent exemption benefits based on how long the investment is held in the OF. OFs will be self-certified per IRS guidelines. OFs are required to invest 90% or more of capital as equity in OZ property, including qualified stock, partnership interest, real estate or business property.
Investor Benefits: Realized gains must be invested into an OF within 180 days to be eligible for the tax benefits. The tax on these gains is deferred until the earlier of investment liquidation or Dec. 31, 2016.
• The basis of the original gains invested is increased by 10% if the investment is held in the OF for at least 5 years and by 15% if the investment is held in the OF for 7 years.
• The basis of the original gains invested is increased by 15% and any capital gains accrued from the investment in the OF are permanently excluded from taxable income of capital gains if the investment is held in the OF for at least 10 years.
Business Property: OFs can invest in tangible property used in a trade or business located within a Qualified OZ. The asset must either be newly placed into service or "substantially improved." "Substantial improvement" means that, over a 30-month period beginning on the date of acquisition, investment in the property exceeds the basis of the property (excluding land value). Examples: New construction of retail, multi-family residential, mixed-use, or industrial properties; Property redevelopment; Purchase of new equipment or other business assets.
Partnership Interest: OFs can purchase, for cash, capital or profits interest in a domestic partnership located within a Qualified OZ. Examples: Equity recapitulation; Growth capital investments.
Stock: OFs can purchase, for cash, newly issued stock in a domestic, qualified OZ business located within a qualified OZ. Examples: Seed stage investments; Series A investments.
IRS- Frequently Asked Questions/Information on Opportunity Zones: https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions
City of Fairfield Opportunity Zones Interactive Map: https://gis.fairfield-city.org/oppzones/index.html
*Source: HCDC, Inc.