What Are Opportunity Zones?
Congress established opportunity Zones in the Tax Cuts and Jobs Act of 2017. This tax law incentivizes long-term investment of unrealized capital gains into both urban and rural areas of America that struggle with high poverty and slow job and business growth. Opportunity Zones can be established if the census determines certain poverty or economic distress thresholds are met and are designated by the Governor.
Opportunity Zones in Louisville, Kentucky
Governor Mat Bevin has designated 19 census tracts as Opportunity Zones. See map below.
Investing in Opportunity Zones
Investments in Opportunity Zones are required to be made through Qualified Opportunity Funds. Few limitations exist on what types of organizations can establish and manage an Opportunity Fund. However, the investment entity must be a partnership or corporation, and the Fund must adhere to regulations created by the United States Department of Treasury.
Opportunity Zone Tax Advantages
Opportunity Funds provide investors with three tax incentives:
A short-term deferral of taxable income for capital gains
A step-up in basis for reinvested capital gains
The basis is increased by 10% if you hold your investment for at least five years. An additional 5% step-up is available if you hold your investment for at least seven years. You can exclude up to 15% of your original gain from taxation!
3. A permanent exclusion from taxable income of capital gains
Capital gains resulting from the sale or exchange of your investment will be excluded from your taxable income you hold your investment for at least ten years.
At least 90 percent of the dollars invested in Opportunity Funds must be invested in areas designated as Opportunity Zones. These Funds can be invested in operating businesses, used for equipment purchases, or for commercial real estate investment. Each fund will respond to your community needs and the interests of the Fund’s managers and investors. Opportunity Funds have the potential to direct much-needed financing to areas of the community that contain prime commercial property investment opportunities!