Opportunity Zones

“…A windfall, in the form of avoided capital gains taxes, for corporations and financiers who invest in the Opportunity Zones.”

— NEW YORK TIMES

10-Year After-Tax Return Comparison

Appreciation RateAfter-TAX IRR After-TAX MultipleAfter-TAX Profits
7.0%
10.0%
12.0%
StandardO-Fund
2.8%5.6%
5.4%8.8%
7.1%11.0%
StandardO-Fund
1.3X1.6X
1.7X2.2X
2.0X2.6X
StandardO-Fund
$324,000$765,000
$687,000$1,391,000
$985,000$1,904,000
  1. Assumes long-term capital gains tax of 23.8% (federal capital gains tax of 20% and net investment income tax of 2.8%), no state income tax and annual appreciation of 7% for both the standard portfolio and the Opportunity Fund Investment.

How Does it Work?

Introduced by the Tax Cut and Jobs Act of 2017, “Opportunity Zones” (“O-Zones”) are census tracts designated by federal and state governments based on their lower income demographics. The Program was created to incentivize investment within these communities by providing material tax benefits to U.S. investors who re-invest any form of capital gains into Opportunity Funds. To qualify, investments must target “substantial improvement”, which generally means development or extensive repositions of a property.

01

Defer

Taxes on the original capital gain until the end of 2026.
02

Reduce

The amount of deferred taxes owed by up to 15%.
03

Recapture

Depreciation is never paid back.
04

Eliminate

Tax on capital gains from the investment if held for 10 years.

Why Opportunity Zone Funds?

Tax deferral

A temporary deferral from taxable income of the capital gain reinvested into a QOF. Capital Gains due are deferred based on how long a fund holds an investment in a qualified opportunity zone.

Stepped up basis

A step-up in basis for capital gains reinvested in a QOF. After being held for five years by the taxpayer/investor, the basis increases by 10%. The basis increases an additional 5% if held for seven years, thereby excluding up to 15% of the original gain from capital gains taxation.

Permanent exclusion

A permanent exclusion from taxable income of capital gains from the distribution of income, sale or exchange of an investment in a QOF if the taxpayer/investor holds the investment in the QOF for at least 10 years. This exclusion applies only to gains accrued after an investment in a QOF.