How Opportunity Zones Create Tax Savings
Revitalizing low-income communities can spur job growth, better housing, support for small businesses and, ultimately, a more stable local economy.
Under the Tax Cuts and Jobs Act of 2017, opportunity zones were created as a development tool to improve low-income areas by generating economic growth and jobs through private investments. 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% and median family income less than 80% of the statewide family income. The community development program’s incentives target an estimated $6.1 trillion in unrealized capital gains to invest in certain economically challenged areas to stimulate economic development.
How does the program work?
The program allows investors to defer capital gains 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.
3 Key benefits for investors
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1. Tax deferral on capital gains
If investing within 180 days of realizing a capital gain, then capital gains will be deferred until the 2026 tax year.
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2. Tax liability reduction
The value for the original capital gain is stepped up to 15% depending on certain holding period requirements. Taxes owed for capital gains on prior investments that are invested in opportunity zones would be reduced by 15% or 10%, if invested by the end of 2019 or the end of 2021, respectively.
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3. Permanent tax exemption
If an opportunity zone investment is held for at least 10 years, then the investor would be exempt from tax liability on any capital gains generated by the investment.
If you have questions or need more information on our investment capabilities, please contact your Oppenheimer Financial Advisor.
The material is not a substitute for consultation with a legal or tax advisor and should only be used in conjunction with his or her advice. Oppenheimer, and its employees or affiliates, do not provide legal or tax advice.
This material contains forward-looking statements and there can be no guarantees that the views and opinions expressed will come to pass. Tax and other laws may change in the future, which may have a negative impact upon this strategy. Any results shown are hypothetical and are for illustrative purposes only. Furthermore, the results are dependent on our understanding of current federal, state and local income, gift and estate tax law which as indicated may change without notice. Tax advantages, if any, are dependent upon an investor’s individual tax situation and profile. Investors are encouraged to consult with their own legal and tax advisors. 2319708.1