Opportunity Zones were created to help bring investment and job creation to low income areas and taking advantage of them in the selling and buying of your commercial, residential or business investments could be a great wealth building tool.
If you’re in real estate, you may have heard of opportunity zones. Opportunity zones were enacted in 2017 with the Tax Cuts & Jobs Act. This is a private tax incentive program that encourages investment and job creation in low-income areas. There are several opportunity zones throughout the country and you can find these online. Here’s a link for a website that we’ve used in the past.
Now, in order to qualify for an opportunity zone investment, you must have a capital gain from the sale of an investment such as a stock or a piece of real estate or even a business. In some cases, you would then roll that capital gain into a qualified opportunity zone fund in order to defer your capital gain tax liability. Now, something to keep in mind, there are certain parameters that must be met in order to qualify for these. After you have the sale of that first investment, you have up to 180 days before you can roll that into a qualified opportunity zone fund. If you do it on day 181, in most cases, you will no longer be eligible and you will be required to pay the taxes on that.
Now, there are different tiers of benefits for qualified opportunity zones. Certain parameters have to be met. But, in some cases, you can actually receive a step up in your basis on the property for tax purposes anywhere from 10 to 15 percent. And, if you hold the property for 10 years or more, in some cases, you will get a complete step up in your tax basis to the fair market value of that property, which means by the time you go to sell again, if you’ve met parameters and you’ve held it for longer than 10 years, you have no capital gains tax liability whatsoever.
This can be a tremendous wealth building vehicle, but this area of the law is very nuanced and somewhat complex so, of course, always consult with a tax attorney, a CPA and a financial advisor.
Feel free to reach out to us with questions or other topics you’d like to see covered.
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