In 2017, the U.S. Government made changes to the Tax Code and created incentives for investment in Qualified Opportunity Zones. The program lets investors defer and even avoid gains when they reinvest in distressed communities within the United States. To learn more about these exciting incentives and how they might impact your investment strategy, contact Mangum & Associates today.
What Is a Qualified Opportunity Zone?
To become a Qualified Opportunity Zone, an economically-distressed community must first be nominated by its state and certified by the Internal Revenue Service (IRS) and Secretary of the Treasury. Once certified, investors may qualify for certain tax incentives when they invest in the Opportunity Zone.
These incentives aim at encouraging development and job creation in struggling communities. When you invest in Qualified Opportunity Zones, you receive a series of benefits:
- You can defer taxes on prior gains that you invest in Qualified Opportunity Zone Funds until you either sell or exchange them, or December 31, 2026 (whichever happens first).
- If you hold your investment in Qualified Opportunity Zone Funds for more than five years, there is a 10% exclusion of your deferred gain.
- After seven years, you are eligible for a 15% exclusion of your deferred gain
- After ten years, your investment’s basis increases to its fair market value on the date that you sell or exchange it.
If you only invest a portion of your gain, only the funds reinvested in Qualified Opportunity Zones is deferred.
If you suffer a loss on your investment in a Qualified Opportunity Zone, you’ll still benefit from deferred capital gains taxes if you retain the investment for at least five years. However, the rules surrounding Qualified Opportunity Zones are rapidly developing, and you should always consult with an attorney and tax professional before filing a tax return or making significant decisions about your investment.
There are Qualified Opportunity Zones in all 50 states, the District of Columbia, and five U.S. territories.
Why Should I Consider Investing in a Qualified Opportunity Zone?
Many of our clients are interested in ways to minimize their capital gains tax burden. If you anticipate significant capital gains in the upcoming years, it’s in your best interest to explore Qualified Opportunity Funds investments. There’s also emotional appeal to the program, since your long-term investment in an economically-distressed community may contribute to its renaissance — all while you benefit from a decreased tax burden.
How Do I Establish Qualified Opportunity Zone Funds?
Qualified Opportunity Zone Funds are typically a partnership or corporation that holds at least 90 percent of their assets in Qualified Opportunity Zones’ properties. While a limited liability company (LLC) can act as an Opportunity Zone Fund, it must be treated as a corporation or partnership for federal tax purposes.
You do not need to live or work in an Opportunity Zone to qualify as a Fund. Instead, you must invest a recognized gain within 180 days of the sale and file a series of documents with the IRS. These documents include Form 8996 (Qualified Opportunity Fund).
However, simply acquiring properties within Qualified Opportunity Zones may not be sufficient to establish your Fund. You’ll typically need to make substantial improvements to an existing property or create a new development. For example, suppose you acquire property within an Opportunity Zone for $1.5 million. Under federal law, you may have make $1.5 million in substantial improvements in the next 30 months to qualify for the Opportunity Zone deferrals.
If you and your partners need assistance establishing Qualified Opportunity Zone Funds, contact Mangum & Associates for more information. Our legal team can help you identify investment opportunities and ensure your compliance with federal tax laws.
How Do I Find Qualified Opportunity Zones?
The federal government lists Qualified Opportunity Zones online and in the Federal Register. However, many investors struggle with the Opportunity Zone list because it designates areas by their population census tracts. If you’re trying to confirm that a specific address is within a Qualified Opportunity Zone, you can either use the U.S. Census Bureau’s Geocoder or consult with an experienced Qualified Opportunity Zone Funds attorney.
At Mangum & Associates, we assist investors and Qualified Opportunity Zone Funds identify investment opportunities within Opportunity Zones that aim to meet or exceed their goals. If you’re looking for a trusted source that can guide you through the Qualified Opportunity Zones process, we’d love to hear from you.
Qualified Opportunity Zones Law Is a Developing Field
Because Qualified Opportunity Zones and Qualified Opportunity Zone Funds are relatively new legal developments, it’s more than likely that the IRS and the federal government will continue to refine this process over the years. As the laws and procedures surrounding Opportunity Zones change, you’ll need to revise your strategies to maintain legal compliance.
Rather than continually track Opportunity Zone law and rulemaking, our clients rely on our team of experienced lawyers and professionals. At Mangum & Associates, we’ve built a reputation for our meticulous research, practical outlook, and dedication to our clients. If you’re looking for sophisticated legal advice concerning Qualified Opportunity Zone Funds, we can guide you in the right direction.
Additionally, your investment may also be eligible for other state and federal incentives. For a personalized analysis of your investment strategy and available tax credits and economic development programs, contact Mangum & Associates.
Are Qualified Opportunity Zones Right for You? Consult With Mangum & Associates
To learn more about Qualified Opportunity Zones and Qualified Opportunity Zone Funds, contact Mangum & Associates. As one of the country’s premier, boutique securities law firms, we guide our clients through their complex investments and craft customized strategies based on their needs. To request a consultation, contact one of our offices today.
An experienced attorney can help you understand your legal options and suggest some practical next steps. We look forward to hearing from you.