WHAT are Opportunity Zones?
In 2017 the Federal Government passed the Federal Tax Cuts and Jobs Act, which expanded the U.S. Tax Code to include preferential treatment for 'Opportunity Zones'. Investors in Qualified Opportunity Zones may defer (or potentially eliminate) paying taxes on 'Capital Gains' when those gains are invested in a Qualified Opportunity Zone (Capital Gains are the 'profit' one makes when selling an investment or a property for more than its purchase price). As of February 2019, the US Government has officially designated 8,740 Qualified Opportunity Zones (Link to PDF list of nationwide Opportunity Zones), however, policies and procedures regarding eligible projects, operating and reporting of funds, and other administrative parameters are still under development by the US Government, including the Internal Revenue Service.
WHERE are Opportunity Zones?
In 2018 U.S. states and territories were allowed to nominate eligible census tracts for consideration as Opportunity Zones based on meeting statutory criteria for 'Low Income' Communities. Four eligible census tracts in the City of Sarasota were ultimately identified as Qualified Opportunity Zones (Map of Qualified Opportunity Zones in the City of Sarasota).
WHY invest in an Opportunity Zone?
Opportunity Zones provide a win-win for investors who want to invest in their community. Depending on the length of the investment, capital gains taxes can be deferred or ultimately eliminated. For example - when a home owner sells her property for more than she purchased it, she is taxed on the taxable portion of the net 'gain'. Now there is an option to invest that gain into an Opportunity Zone Fund, where the money will be used to help realize redevelopment efforts within the City's Qualified Zones. Investing gains in a Fund for over 5 years results in only being taxed on 90% of the gain. Leaving gains in a Fund for 7 years, results in only being taxed on 85% of the gain. If an investment is held in a Fund for over 10 years, the investor will be excluded from paying taxes on any returns the Fund generated during the investment period. Below are a number of resources which detail the financial benefits of investing in Opportunity Zones.
HOW does one invest in an Opportunity Zone?
Opportunity Zone investments are made through Opportunity Zone Funds. O.Z. Funds may be established by Corporations, Partnerships, and Limited Liability Companies through self-certification via the IRS. These Funds must ultimately invest greater than 90% of their value within Qualified Opportunity Zones, and will require extensive economic reporting to demonstrate compliance, as well as to plan and measure the economic transformations of the recipient Opportunity Zones.
I'd like more information:
IRS FAQ on Opportunity Zones (January 2019)
Proposed OpZone Regulations - Scheduled for Public Hearing Feb 14, 2019 (October 2018)
IRS Revenue Ruling 2018-29: Clarifying Original Use Rqmt
IRS Form 8996 - Certification for Qualified Opportunity Funds
IRS Instructions for Form 8996
U.S. Dept of Treasury: Opportunity Zone Resources
FL Dept of Economic Opportunity: Opportunity Zone Resources
Enterprise Community Org: Opportunity Fund Investing
Economic Innovation Group Org: Opportunity Zones and Funds
Steven Stancel, General Manager, Office of Economic Development