What Are Qualified Opportunity Zones?

[Charles Carillo]

Want to defer or reduce capital gains? Charles discusses what investors should know about the tax benefits of investing into opportunity zones.

Links Referenced in Episode:

• https://www.wellsfargo.com/the...

• https://badermartin.com/want-t...

Talking Points:

➡ First off, always consult a tax professional before investing – especially in Qualified Opportunity Zones

➡ The 2017 Tax Cuts and Jobs Act established the Qualified Opportunity Zone program to provide a tax incentive for private, long-term investment in economically distressed communities.

➡ Investors in these programs are given an opportunity to defer and potentially reduce tax on recognized capital gains.

➡ Tax savings are only available when investors retain the investment in a Qualified Opportunity Fund for the time frame stated.

➡ How this may help you? Are you facing a significant tax liability because of capital gains? Investing into a Qualified Opportunity Zone Fund may be a viable option for you.

➡ What is an opportunity zone?

o An Opportunity Zone is an economically distressed community that provides preferential tax treatment to long-term investors under federal tax rules.

o For an area to qualify as an Opportunity Zone it must be characterized by either of the following:

➡ a poverty rate of at least 20 percent, or

➡ a median household income that is less than 80 percent of the median household income of its neighbors.

o There are more than 8,700 certified opportunity zones. They are located in every state; Washington DC and 5 US territories.

o Not all locations are rural or inner-city.

➡ What are the federal tax benefits? The 2 main benefits are:

o Number 1 is the deferral of the capital gain reinvested into the opportunity zone – until 2026; payable in 2027

o Number 2 is if the qualifying investment in the opportunity zone is held for more than 10 years; its tax basis increases to fair market value as of the date you sell it; in other words, the qualifying investment in the opportunity zone appreciates tax-free; so there will be no capital gains when you sell it.

o Check with your tax professional about state tax implications.

➡ What are the requirements for a Qualified Opportunity Fund?

o A Qualified Opportunity Fund must invest at least 90 percent of its assets into Qualified Opportunity Zone Properties

o These can be indirect or direct investments

➡ In conclusion, if you have capital gains and you are able to reinvest them; investing into a Qualified Opportunity Zone Fund might be a great solution; to reap the full rewards; I would keep your funds invested for over 10 years so that the gains from the fund are not taxable.

➡ One thing that was not mentioned in my research was inflation. If you are deferring taxes for several years; you are paying with dollars’ worth much less. Just figure out from the time you invest in the Qualified Opportunity Zone Fund to early 2027; what will inflation be and you can see the additional hidden discount you are receiving.

➡ Where do you find a Qualified Opportunity Zone Fund? Speak to your financial advisor and they should be able to direct you to a firm that offers them but, going direct to the actual fund operator; will dramatically reduce fees. A financial advisor of mine introduced me to a firm that connects you with an operator; and the fees were upwards of 8-10% vs. going direct to fund operators where the fee was only 1%-2%.

➡ Always consult a tax professional before investing

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