There are now Qualified Opportunity Zones (QOZs) in three territories and 15 states. These zones were designated by the IRS and the US Treasury Dept. According to the IRS and Wolters Kluwer, private investments in these specific QOZs receive preferential tax treatment under the Tax Cuts and Jobs Act (TCJA) of 2017. With this new law in place, states, possessions, and territories can nominate low-income communities as designated QOZs. These QOZs are also eligible for special tax benefits. March 21, 2018, was the cut-off date for states, possessions, and territories to nominate these qualified zones. If they hadn’t done so by March 21, 2018, then they had the option to request a thirty-day extension. QOZs retain their designation for ten years.
“This is probably the most significant opportunity for investors to help the economic process in low-income areas within the past 50 years. It is so innovative and potentially game-changing. There could be several trillion dollars of new capital put to work with these programs,” said Engineered Tax Services’ Director of Business Development, Jamie Pope.
Things to Keep in Mind About Qualified Opportunity Zones
- If you harvest any type of capital gain or place an investment inside an opportunity zone, you receive immediate tax deferral on that gain.
- If you hold your Qualified Opportunity Fund (QOF) for 10 years, you receive a full step up in basis to whatever amount-you sell or exchange the investment.
- Tax deferral today, tax-free in the future.
- Must be an investment in a viable business, no sim-business allowed. All types of real estate properties qualify as well as operating businesses.
- Eliminated the need for someone to pass away in order to unwind 1031 exchanges with a step up not including the owner’s death.
- No like-kind exchange or possible diversification and perhaps can get out of the direct management of properties.
Wolters Kluwer reports that investors who invest in a Qualified Opportunity Fund (QOF) can defer tax on prior gains until December 31, 2026.
|States The IRS Has Approved QOZ Nominations||Territories the IRS has also approved QOZs:|
|Colorado||U.S. Virgin Islands|