Opportunity Zone FAQ

An Opportunity Zone is a designated economically distressed community where new investments may be eligible for preferential tax treatment. These zones were created by the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income communities.

There are over 8,700 designated Opportunity Zones across all 50 states, the District of Columbia, and five U.S. territories. These zones represent approximately 12% of all census tracts in the United States.

A Qualified Opportunity Fund is an investment vehicle organized as a corporation or partnership for the purpose of investing in Opportunity Zone property. QOFs must hold at least 90% of their assets in Opportunity Zone property and can be self-certified with the IRS.

Yes, you can invest directly in Opportunity Zone property or through a Qualified Opportunity Fund. Direct investments give you more control but require more expertise and compliance management. QOFs provide professional management and diversification.

The three tax benefits are: 1) Capital gains deferral until December 31, 2026, 2) Basis step-up of 10% after 5 years and 15% after 7 years, and 3) Tax-free appreciation if held for 10+ years.

You can defer capital gains from any source, including stock sales, real estate sales, business sales, cryptocurrency gains, and other capital assets. The gains must be invested within 180 days of realization.

Tax savings depend on your specific situation, but can be substantial. For example, on a $1M capital gain with a 20% tax rate, you could save $200K in immediate taxes, plus 15% on the deferred amount, plus all taxes on appreciation after 10 years.

Deferred capital gains taxes are due by December 31, 2026, regardless of when you sell your OZ investment. However, if you hold for 5+ years, you get a 10% basis step-up, and if you hold for 7+ years, you get an additional 5% step-up.

Qualified Opportunity Funds must hold at least 90% of their assets in Opportunity Zone property. This test is measured on the last day of the first 6-month period and the last day of the taxable year.

For existing buildings, you must make improvements equal to the building's basis within 30 months. For vacant land, you must make substantial improvements within 30 months. The improvements must be made to the building, not the land.

Failure to meet compliance requirements can result in loss of tax benefits, penalties, and interest. It's crucial to work with experienced professionals to ensure ongoing compliance throughout the investment lifecycle.

Yes, you'll need to file Form 8949 and Schedule D to report your OZ investment. QOFs must file Form 8996 annually to certify compliance with the 90% asset test. Proper documentation is essential for maintaining tax benefits.

You can invest in any type of real property located in an Opportunity Zone, including residential, commercial, industrial, and mixed-use properties. The property must be used in a trade or business and meet the substantial improvement requirements.

There's no minimum investment amount for Opportunity Zone investments. However, most QOFs have minimum investments ranging from $25K to $1M. Direct investments typically require larger amounts due to property costs and development requirements.

You can use the Treasury Department's Opportunity Zone mapping tool, work with local real estate professionals, or partner with experienced OZ investment firms. We provide comprehensive property identification and analysis services.

Returns vary significantly based on location, property type, and management. Typical returns range from 8-15% annually, but the tax benefits can significantly enhance overall returns. It's important to evaluate both the investment returns and tax benefits together.

You have 180 days from the date you realize a capital gain to invest it in a Qualified Opportunity Fund. This deadline is crucial - missing it means you lose the ability to defer taxes on that gain.

To get the full 7-year basis step-up (15% reduction), you must invest before December 31, 2021. After that date, you can still get the 5-year step-up (10% reduction) if you invest before December 31, 2024.

To get the maximum tax benefits, you should hold for at least 10 years. This gives you tax-free appreciation. However, you can sell earlier if needed, though you'll lose some tax benefits.

After December 31, 2026, you must pay taxes on your deferred capital gains (minus any basis step-up). However, if you hold for 10+ years, any appreciation after your original investment remains tax-free.