In 2017 Congress created a new tax incentive for investment into Qualified Opportunity Zones (QOZ), as part of the Tax Cuts and Jobs Act. You might be familiar with the older zone programs which were the Renewal Communities and Empowerment Zones which lapsed into non-authorized status on January 1, 2018. These new zones, given the nick-name “QOZ”, were created as a different approach to addressing poverty than the older programs.
To participate in the program an investment into real estate or a business that is located within a Qualified Opportunity Zone is required. And, key, is that before the investment is performed a new entity must be set up to make and manage the investments in the Zones. These entities are called Qualified Opportunity Funds in the legislation.
Last year 8700 zones were designated by the Treasury Department and selected by the Governor of each state. The zones are:
- Designated by census tract and represents about 12 percent of U. S. census tracts.
- The Qualified Opportunity Zones represent areas that need capital infusion.
- In addition, the QO zones were selected based on the likelihood of success attracting investment.
- A significant increase in number of people affected, when compared to the old Renewal Communities and Empowerment Zones, which only had 40 each.
Congress, industry and other lobbying efforts (like those performed by McKenzie Chase) are conducting talks about adding some form of hiring credit that might work together with the Opportunity Zones.
Investors may benefit in several ways:
- The first is that the capital gains tax can be deferred up the end of 2026, depending on how long the investment is held.
- It also allows the tax to be reduced, by as much as 15% if held for 7 years.
- Finally, gains from the investment can themselves be tax exempt if the investment is held for 10 years.
To learn more simply reply to this Newsletter or call the MCM office at (206) 547-8277.