Quick Takeaways

  • The Qualified Opportunity Zone program was creating in 2017 to encourage economic growth in low income communities, as identified by the US Census Bureau.
  • Qualified Opportunity Zones provide tax benefits, including the free from capital gains tax incentive if the investments are processed through an Opportunity Fund.
  • The program is set to fully sunset on December 31, 2047.

The Qualified Opportunity Zone (“QOZ”) program was created by the 2017 Tax Cuts and Jobs Act to encourage economic growth in underserved communities through tax incentives for investors who utilize “Opportunity Funds” to invest in the Zones. Along with tax benefits, it presents opportunities for real estate investment and development in those communities. U.S states and territories, including Washington, D.C., nominated areas to be designated as QOZs in 2018, and the IRS and Treasury finalized the designations that year. The U.S. Treasury Department and the Internal Revenue Service are currently conducting notice-and-comment rulemaking to finalize regulations for the program. This is a temporary program, set to fully sunset on December 31, 2047.

There are multiple tax benefits available to investors who invest in a QOZ, if all the requirements are met. First, capital gains reinvested within 180 days into a QOZ are tax-deferred for up to nine years, through 2026. If the new investment (to which the capital gains were rolled into), the tax ultimately paid on it is reduced by 10%; if held for seven years, it is reduced by 15%. In addition, gains accrued on investments in a QOZ are free of capital gains tax if they are held for at least ten years. These investments must be processed through an “Opportunity Fund,” which is a partnership or a corporation organized for the purpose of investing in QOZ property; these funds self-certified, and must hold at least 90% of their assets in QOZ property (which includes stock, partnership interests, and/or tangible property used in a trade or business in a QOZ, such as real estate).

See References for more information.