The 2017 tax reform reconciliation act, enacted December 22, 2017, includes a new tax incentive program, Internal Revenue Code Subchapter Z – Opportunity Zones, aiming to promote investments in certain economically distressed communities. Through the opportunity zone program, investors are able to inject capital into low-income communities and promote long term economic growth through a variety of investment vehicles. Investors may also receive significant tax benefits that include (i) tax deferral for capital gain invested in a qualified opportunity fund, (ii) elimination of up to 15% of the tax on the capital gain that is invested in the qualified opportunity fund, and (iii) potential elimination of tax when exiting a qualified opportunity fund investment.
Potential investors who might be interested in specific states for investment should note that governors have until March 21, 2018 to submit the notification of nomination for specific census tracts to be designated as a QO Zone to the Treasury Secretary, unless the state requests a 30-day extension. Some states, such as California, which has identified 798 tracts, have already submitted their proposals.
QO Funds are not only an opportunity for investors to promote growth within our nation’s struggling communities, they also can provide tax savings to investors if structured properly. Taxpayers that have large gains should analyze reinvestment opportunities within designated QO Zones to see if the incentives available through this program could provide benefits.