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Our neighborhood is classified as a federal Opportunity Zone, meaning that in addition to building a better community, there are several financial incentives to investing here. The primary attraction for investing in Opportunity Zones is deferring and lowering federal taxes on capital gains.
Below are some frequently asked questions about the Opportunity Zone Program, as compiled by the IRS.
What is an Opportunity Zone?
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation authority to the Internal Revenue Service.
What is the purpose of Opportunity Zones?
Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
How do Opportunity Zones spur economic development?
Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains until the earlier of the date on which an investment is sold or exchanged, or December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor would be eligible for an increase in basis equal to the fair market value of the investment on the date that the investment is sold or exchanged.
What is a Qualified Opportunity Fund?
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 and that utilizes the investor’s gains from a prior investment for funding the Opportunity Fund.
Do I need to live in an Opportunity Zone to take advantage of the tax benefits?
No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest in a Qualified Opportunity Fund.