Facts about opportunity zones
Opportunity Zones were created under the Tax Cuts and Jobs Act of 2017 (Public Law No. 115-97). Thousands of low-income communities in all 50 states, the District of Columbia and five U.S. territories are designated as Qualified Opportunity Zones.
Opportunity Zones are an economic development tool that allows people to invest in distressed areas in the United States. Their purpose is to spur economic growth and job creation while providing tax benefits to investors.
Benefits of investing in opportunity zones
Opportunity Zones offer tax benefits to business or individual investors. Investors can defer tax on the invested gain amounts until the date they sell or exchange the investment, or Dec. 31, 2026, whichever is earlier.
The length of time the taxpayer holds the investment determines the tax benefits they receive:
- If the investor holds the investment for at least five years, the basis of the investment increases by 10% of the deferred gain.
- If the investor holds the investment for at least seven years, the basis of the investment increases to 15% of the deferred gain.
- If the investor holds the investment for at least 10 years, the investor is eligible to elect to adjust the basis of the investment to its fair market value on the date that the investment is sold or exchanged.
Deferral of Eligible Gain
Gains that may be deferred are called "eligible gains." They include both capital gains and qualified 1231 gains, but only gains that would be recognized for federal income tax purposes before Jan. 1, 2027, and that aren't from a transaction with a related person.
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