Economic Innovation Group (EIG), a Washington, DC – based think tank shaped the Investing Opportunity Act which made it to the 2017 Tax Cuts and Jobs Acts (Trumps tax reform legislation). There, it got a new name: the ‘Opportunity Zones’ program, which encompasses nearly 9,000 ‘economically distressed communities’ or “Opportunity Zones” across America. In early 2018, every US Governor designated certain communities as Opportunity Zones in his or her state. In total, there are 8,762 Opportunity Zones that cover about 12% of America’s land mass. They are home to approximately 35 million people with an average poverty rate of 32%.
In a nutshell, The Opportunity Zones program is a new tax incentive established by the US Congress whose goal is to encourage long-term investment in low-income communities across the US. The program gives investors the opportunity to sell their appreciated investments and invest their capital gains in one or more of these Opportunity Zones across the country on a tax deferred basis. Considering America’s current “everything bubble” – stocks, bonds, real estate, etc. – caused by relentless Federal Reserve money printing, the program’s timing couldn’t be perfect.
- Every state is home to multiple Opportunity Zones. And every major city has at least one. For example, most of Detroit is an Opportunity Zone… as well as large chunks of Baltimore… and even parts of Manhattan.
- To receive tax benefits, investors need to sell their appreciated assets and invest their realized capital gains into one or more designated Opportunity Zones.
- Any appreciated asset that triggers capital gains tax upon its sale should qualify. That means that the program will work not only for Americans but also for foreigners with potential US capital gains tax obligations.
- After selling your appreciated asset, you have 180 days to move your capital gains into the Opportunity Fund.
- You can invest any type of money into Opportunity Zones (not just capital gains). But non-capital gains will not be eligible for the incredible tax incentives.
- The longer you hold an investment in an Opportunity Zone, the more your potential tax benefits will grow. We’ll cover the exact benefits in the next section.
- Individuals must invest in Opportunity Zones through Opportunity Funds, which should be organized as corporations or partnerships.
- New Opportunity Funds will not require official IRS approval. Any investor can self-certify the fund by submitting the yet-to-be-released IRS form with their tax return.
- Opportunity Fund ownership is liberal – an individual, a small number of partners, or a large pool of investors operating with a professional fund manager can own a fund..
- There is no investment amount limitation – you can invest as little as one dollar or as much as billions in an Opportunity Fund.