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Opportunity Zone Investments

The 2017 Tax Cuts and Jobs Act (TCJA) was the most sweeping tax legislation since the 1986 Tax Reform Act was signed into law.  The Tax Cuts and Jobs Act made small changes to personal income taxes and significantly reduces income tax for corporations. It also increased alternative minimum tax (AMT) and estate tax exemptions. New tax deductions for owners of pass-through entities and changes to the taxation of foreign income were also part of TCJA. For investors, Opportunity Funds promote investing in low-income designated areas, called Opportunity Zones, by offering federal tax advantages.

Are You Missing Out on A Tax-Saving Strategy?

If you have capital gains you’d like to invest, Opportunity Zone investments may be one to consider. Opportunity Zones not only benefit communities by putting money and economic development into low-income areas but also can give great tax incentives. By using Qualified Opportunity Funds to invest gains in Opportunity Zones you can defer paying taxes on that gain. Opportunity Funds are investment vehicles that invest 90% of its holdings within Opportunity Zones. Funds have local requirements within communities, like investing in the rehabilitation of existing buildings and supporting local businesses.

What are Opportunity Zones?

Created in April of 2018, Opportunity Zones have been established in all 50 states. Both urban and rural, these areas are designated by census and state governors and then certified by the US Treasury. Opportunity zones have a poverty rate of at least 20% and the program is designed to create tax incentives for investors to develop in low-income communities in order to nurture longer-term economic development. You can find more information on Opportunity Zones here: https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx

What are the Tax Benefits?

The benefit to investors is the ability to defer and reduce capital gains tax burdens. In some cases, investors may even be able to eliminate their capital gains tax burden by selling their investments in Qualified Opportunity Zones and keeping it vested for at least ten years. While some benefits may be more immediate, the real tax incentives of investing in Opportunity Funds are long-term. Investors that move realized capital within 180 days of the asset sale, can defer paying capital gains tax until Dec 31, 2026, or until they sell their Opportunity Fund Investment.  If an investor holds their investments for 10 years, they will not pay any capital gains tax on any appreciation from their original investment. If the investment is sold between 5 and 9 years, investors will also see a reduction in their taxes. These gains can be rolled back into investments instead of just going toward paying taxes, which is good for the taxpayer and for the distressed community they invest in. There is also no cap on the amount you can invest in Opportunity Funds.

Win/Win

Opportunity Zone investing may not be for everyone. As stated above the ideal investor is one who would like to roll capital gains into new investments and defer paying tax. This ideal investor must also be comfortable leaving their investments for a minimum of 5 to ten years to reap the total tax benefits. For the right investor, another incentive is the variety of Zones and types of funds available to participate in. Depending on your interests and values, investors can find an Opportunity Fund and Zone that fits them. Impact Investing in Opportunity Zones can help revitalize struggling areas, bringing in jobs, housing, and hope. It’s a good feeling to know that your money is going toward improving a community.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.


Zachary Morris

Zachary Morris, CFP®

Having traveled to over 35 countries, Zach is a believer in Ralph Waldo Emerson’s statement that Life is about the journey, not the destination. Being a CERTIFIED FINANCIAL PLANNER™ provides Zach the opportunity to help clients define and realize their journey, and co-founding Paces Ferry Wealth Advisors, an independent firm, allows the freedom to define the client experience along the way.