Qualified Opportunity Zone (Individual)
Investors can create tax savings by investing their unrealized capital gains in an Opportunity Zone.
Commonly referred to as opportunity zone fund, QZF and QOZ.
Do I Qualify for the Qualified Opportunity Zone (Individual)?
The Tax Cuts and Jobs Act created Opportunity Zones to allow investors to invest unrealized capital gains into the economic development of undercapitalized communities and receive tax benefits for doing so.
2022 Qualified Opportunity Zone (Individual) Details
The Tax Cuts and Jobs Act created the Opportunity Zones program to spur economic development in undercapitalized communities by providing tax benefits to investors.
Qualified Opportunity Zone Fund Tax Benefits
Investors can create tax savings by investing their unrealized capital gains in an Opportunity Zone. There are three different ways that investors can reap tax savings from Opportunity Zones.
1. Defer tax on any previously generated capital gains. Investors can place those gains into an Opportunity Zone fund, and they will not be taxed until either the fund is sold or December 31, 2026, whichever comes first.
2. Keep funds invested in an Opportunity Zone and receive a step-up in basis. A step-up in basis means that the increase in value will be treated as if it is part of the original purchase price. Investors will not have to pay tax on that portion of the investment that is stepped-up. They will receive an additional 10% step-up in the original basis for capital gains that are kept in the Opportunity Zone fund for five years and a 15% step-up for funds that remain invested for seven years.
3. Hold the investment in the Opportunity Zone for at least 10 years. If the investor does this, they will be eligible for an increase in basis equal to the fair market value of the investment on the date it is sold or exchanged. In other words, they will not have to pay capital gains taxes on their initial investment.
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• Investors have the opportunity to potentially reduce or eliminate tax liability on unrealized capital gains.
• Capital will be tied up for a significant period of time.
Assumptions When Taking the Qualified Opportunity Zone (Individual)
• The investor is willing to hold the investment in the opportunity fund for at least 10 years.
• The increase in basis for the investment equals the fair market value on the date it is sold (no gain recognized).
• Tax Loss Harvesting
Requirements to Claim the Qualified Opportunity Zone (Individual)
• The investment must be made in a properly designated Opportunity Zone.
• The initial capital must be invested in the asset within 180 days.
Business Entities That Can Claim the Qualified Opportunity Zone (Individual)
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.