by Caroline Kirby
Opportunity Zones have been a hot topic of interest ever since their creation by the Tax Cuts and Jobs Act on December 22, 2017. Even though it’s been nearly two years, the real estate industry is buzzing with questions around what it means and how to create profitable opportunities from them.
If you want to learn more about these opportunities and get full advantages, you need to understand some basics.
Opportunity Zones Explained
The IRS explains Opportunity Zones as “an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” They were created to encourage economic development and job creation in distressed communities.
These areas must be nominated by the state and then certified by the Secretary of the U.S. Treasury (who has been designated authority by the IRS).
The first set of Opportunity Zones were established in April of 2018 and spanned across 18 states. Since then, zones covering parts of all 50 states, the District of Columbia and five U.S. territories have been assigned.
Now that we’ve covered the basics, let’s get into the significant parts. You don’t need to be a tax expert to understand the benefits, but it can be complex. To receive full benefits, you may consider consulting a tax professional. Two important things to note are:
1. Investors don’t need to live in an Opportunity Zone to get tax benefits.
2. You must invest in a Qualified Opportunity Fund (QOF) to receive the benefits.*
*The QOF is an investment channel that is set up as either a partnership or corporation for investing in eligible property.
What can investing in a Qualified Opportunity Fund do for you? Here’s a quick rundown of some significant points:
Capital gains reinvested (within 180 days of a sale to a non-related person) into a QOZ are tax-free as long as they are held in the program, through 2026.
Tax Exclusion for Investments Held for 5 Years:
If held for five years, the tax paid on the reinvested gains is reduced by 10%; if held for seven years, that reduction is increased to 15%.
Permanent Tax Exclusion of 100% of Taxable Gain:
Gains accrued on deferred-gains funds while invested in a QOZ are tax-free if they are held for at least ten years.
Check out LandHub’s current listings and blog for inspiration. Opportunity Zones provide a unique chance to enjoy returns, save on taxes, and stimulate economic opportunity depending on how you use your new land.
If you’re looking for more insight into Opportunity Zones, their purpose, the regulations and policies, as well as actionable steps on how to leverage this information to create value check out this webinar from Realtors Land Institute.
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