Demystifying Opportunity Zones

Exploring private investments that stimulate economic growth and improve low-income areas.

It’s been quite some time since we have seen as much excitement and confusion over a single investment topic as we recently have regarding opportunity zones. The Opportunity Zones Program has created a tremendous amount of buzz throughout the real estate, legal, accounting, and wealth management communities over the last year. I seek to demystify what these zones are and explain the basics of how they are designed to work.

Investments in these economically distressed regions create tax benefits for investors. The eligibility criteria included locations within certain ZIP codes that have poverty rates of at least 20 percent and median family incomes less than 80 percent of median statewide family income levels. The community development program’s incentives target an estimated $6.1T in unrealized capital gains to invest in certain economically challenged areas to stimulate economic development. The program allows investors to defer capital gain taxes, provided those gains are invested in qualified opportunity zone funds. Timing is paramount. Once capital gains are realized, those proceeds must be invested within 180 days into a qualifying opportunity zone investment or fund. Tax benefits are dependent on the length of the investment holding period and the date of investment. It’s interesting to note that this was one of a few bipartisan tax legislation pieces added into the 2017 tax bill.

The Opportunity Zones Program offers three potential tax benefits for investing in low-income communities through a qualified opportunity zone fund.

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