Who knows more about these opportunity zones?

Question

I've been hearing a lot lately about these new opportunity zones (from the most recent tax bill). Anybody want to help me wrap my head around it a little better?

Ashish Acharya · Answer

@Nelson Taylor ,

Benefits:

A) Temporary deferral(possible reduction)of inclusion in gross income for capital gains reinvested in a Qualified Opportunity Fund (QO Fund)

■ Held for 5 years - 10% of capital gain is avoided

■ Held for 7 years - 15% of capital gain is avoided

B) Permanent exclusion of certain capital gains from the sale or exchange of an investment in the QO Fund.

Example:

A sells a property and realizes a gain of $1 million on Dec. 1, 2021. On Dec. 31, 2021 (i.e., a date within the 180-day period beginning on Dec. 1, 2021), A invests all of the $1 million gain in a QO Fund.

If A holds (Not sold) the investment in the QO Fund until Dec. 31, 2026, as the deferral period is over, A has to include the deferred gain in A’s gross income in 2026. How much of the reinvested $1M would he include? Answer: 900,000

● Reinvestment amount = $1M

● Basis increase/Capital gain avoided = 100,000 (10% of Reinvestment as held for 5 years.)

● Gain included = (Reinvested amount - basis increase) = 1M - 100,000= $900,000.

If A also sells the investment in QO Fund in Dec 1 2031, 10 years later, he does not recognize any capital gain on the sale of his investment in QO fund.

If A sells the investment before 10 years, basis in the investment is based on the time it is sold:

Basis starts with Zero and increases in this order

■ Held for 5 years - 10% of gain reinvested

■ Held for 7 years - 15% of gain reinvested

Basis at 5 years = 100,000

Basis at 7 years = 150,000

Thus gain/loss is determined based on the FMV of the investment less the basis at the date of sale. If the date of sale was more than 10 later the initial investment, no capital gain is recognized.

Brandon Hall · Answer

@Thomas Castelli is an expert at Opportunity Funds. We'll see if he wants to chime in.

What questions do you have?

Lance Lvovsky · Answer

Best tax shelter ever and it is totally legal. If timed, you have three tax benefits:

1. Deferral of initial gain

2. Reduced recognition of deferred gain.

3. And best of all... potential 100% tax free appreciation.

The rules are complex and it is best you consult with advisors who understand the intricacies of opportunity zones.

Matt Ward · Answer

Account Closed do you have specific questions?  some concepts here are not difficult to grasp while others require some help from professionals.  There are already great tax pros on this thread to comment!  Best of luck!

Nelson Taylor · Answer

@Lance Lvovsky What does reduced recognition of gain mean?  Thanks!!

​Who knows more about these opportunity zones?

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Who knows more about these opportunity zones?