WHAT ARE OPPORTUNITY ZONES?
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.
Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
Opportunity Zones were added to the IRS tax code by the 2017 Tax Cuts and Jobs Act. The County of Los Angeles unincorporated areas have 17 Opportunity Zones, 3 in the First Supervisorial District, and 14 in the Second Supervisorial District.
WHERE ARE THE ZONES?
Opportunity Zones Tax Incentives
Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017. The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund.
Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.
- It is an investor incentive that pertains exclusively to capital gains
- It is designed to concentrate capital rather than diffuse it
- It rewards patient capital: all incentives are tied to the longevity of the investment
- It unlocks scarce equity capital
- It provides no up-front subsidy of public funds and doesn’t pick winners
- It was designed with startups in mind
- It gives investors a stake in underserved communities
A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opprotunity zone investment is disposed of or December 31, 2026.
A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
How Does It Work?
The four parties in an Opportunity Zone transaction
How is this program different?
Residential, commercial real estate, and business investments
No benefit cap