How long will QOZ designations remain in effect?
Specific census tracts in distressed communities that were granted QOZ designation will retain their QOZ status until December 31, 2028. QOZ investments in these areas are valid through December 31, 2047.
How can one invest in a QOZ?
To receive the tax benefits, taxpayers must invest their realized capital gains into an opportunity zone fund within 180 days of the sale. Taxpayers cannot invest into a QOZ directly, but rather must utilize an opportunity zone fund.
What are opportunity zone funds?
Opportunity zone funds are intermediary investment vehicles structured as partnerships or corporations. They must hold at least 90% of their property in QOZs or in “QOZ businesses.” Funds may be widely-held for purposes of holding multiple assets, or closely-held for the purpose of holding a specific project – or a combination of the two.
Who can create an opportunity zone fund?
There are no restrictions on who can form an opportunity zone fund. Existing partnerships, new corporations, or single investors can form opportunity zone funds as long as: (1) their entities are organized as corporations or partnerships, and (2) they invest in QOZ property. The election to become an opportunity zone fund can be made on Form 8996 which is filed annually with the entity’s tax return.
How should opportunity zone funds invest their property?
Funds can invest in two different manners as follows:
- They can directly by investing their own capital into Qualified Opportunity Zone Property that is located within QOZs.
- They can make equity investments into “QOZ businesses.” QOZ businesses must hold 70% or more of their tangible property in a QOZ.
The original use of the property in the QOZ must commence with the opportunity zone fund. There are some exceptions for vacant property placed into service and for a used property that is purchased and placed into service in a QOZ.
How quickly should opportunity zone funds invest their property into QOZs?
The proposed regulations provide that Funds must invest their capital into QOZs within six months of receipt. In addition, the 90% test must be satisfied on the last day of the first 6-month period of the fund’s taxable year, and on the last day of the fund’s taxable year.
Can opportunity zone funds invest in multiple opportunity zones?
Yes, as long as at least 90% of their assets are invested in QOZs.
What benefits will investors receive?
Investors will receive up to three perks for investing in a QOZ:
- a temporary deferral of capital gains that are reinvested into an opportunity zone fund;
- a step-up in basis of the deferred capital gains; and
- a permanent exclusion of capital gain income that results from the sale of an investment held in an opportunity zone fund for at least 10 years.
What happens when investors sell their QOZ investment before 10 years?
The tax deferral provided by this incentive program will end once investors sell their QOZ investments. The only way they can continue to defer their gains is to reinvest those proceeds into other opportunity zone funds.
Click here for a list of Qualified Opportunity Zone resources.
