Opportunity Zones

I am reaching out to draw your attention to a great opportunity for those interested in new investment ventures. With the passage of the Tax Cuts and Jobs Act this past December, Congress has introduced a new tax incentive program for development and community revitalization through the creation of “Opportunity Zones”. An Opportunity Zone is a specifically designated location within a low-income community that provides the potential for tax benefits to investors. This bipartisan incentive program offers individual and corporate investors a lucrative opportunity in up-and-coming locations while simultaneously providing economically-stressed communities with the growth and employment opportunities they need.  

Opportunity zones in California

How It Works

Through the end of April 2018, governors were given the ability to designate up to 25% of their state’s low income areas as Opportunity Zones. Opportunity Zones in all 50 states were officially approved by the IRS in June (California’s Opportunity Zones can be seen here on the right in blue). Through the creation of an Opportunity Fund, a corporation or partnership established to invest in certain qualifying property in the Opportunity Zone, investors can yield substantial returns. Eligible property must be purchased after December 31, 2017 and engage in trade or business within the Opportunity Zone. The use of the property must originate with the Opportunity Fund or be substantially improved by the Opportunity Fund in order to qualify for investment benefits.

Investor Benefits

Those who invest in Opportunity Zones are eligible to defer on any prior short-term or long-term capital gains as long as those gains are invested in a Qualified Opportunity Fund. Opportunity Funds must maintain at least 90% of their assets within the Opportunity Zone, whether that be in stock, business property, or partnership interest. As long as prior gains are invested within one of these Qualified Opportunity Funds within 180 days of a sale or disposition of property, then investors can defer on capital gains tax until the earlier of the date on which the investment was sold, or until December of 2026.  The longer a taxpayer maintains an investment within one of these Qualified Opportunity Funds, the greater the benefits. After 5 years, the investor will get a step-up in tax basis that is equal to 10% of the original gain, and after 7 years this tax basis step-up is increased by another 5%. After 10 years, taxpayers will be eligible for all capital gains on post-acquisition to be excluded from gross income. By incentivizing this long-term investment, the program ensures that these struggling communities get the economic commitment they need to grow.

There are currently 878 Opportunity Zones in the state of California, and 273 in Los Angeles alone.  You can find a complete list of all Qualified Opportunity Zones here. Please contact me with any questions you may have regarding this new development.