What is a Qualified Opportunity Zone?
A Qualified Opportunity Zone (QOZ) is an economically-distressed community that has been designated as such by the State.
You can search for Opportunity Zones here.
How do I invest in an Opportunity Zone?
You must invest the capital gains from the sale of real estate, stock, or a business into a QOZ within 180 days.
To invest in a QOZ, the LLC that buys the property located in a QOZ self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return.
What are the tax benefits?
Taxes on the capital gains invested in a QOZ are deferred until December 31, 2026.
Investors tax basis will be increased 10% if the QOZ investment is held 5 years. If the investment is held for at least 7 years, the tax basis will be increased to 15%.
If an investment in a QOZ is held for 10 years, all of the profit from the sale of that property is tax-free.
For example, you make $200,000 in profit from the sale of a stock or business. You take that capital gain and buy a property located in a QOZ within 180 days. You hold that property for at least 7 years. This decreases your $200,000 gain by 15%. So, now you only pay taxes on $170,000.
After holding the investment property for 10 years, you sell the property and make an additional $400,000 profit. This additional profit is entirely tax-free.
Read why this is considered a 1031 Exchange on steroids!
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