On December 22, 2017, an exciting new initiative was signed into by Congress in Federal Legislation to promote investments in specific areas known as Opportunity Zones.
If you have invested in stocks, real estate or other assets that have appreciated in value, generally you cannot sell those assets without paying significant capital gains taxes.
Now, by investing in a Qualified Opportunity Fund, like Orlando Opportunity Fund, you can sell your appreciated asset and potentially defer your original capital gain until 2026. You can also receive a discount on your original capital gain by way of a 10% step-up in basis if you hold the investment for five years, and an additional 5% step-up basis if you hold the investment for seven years.
Further, you have the ability to permanently exclude the appreciation from your fund investment from taxation if you hold your investment in a Qualified Opportunity Fund for at least 10 years.
Opportunity Zones are specific census tracts (roughly 25% of the qualifying “low income” communities in each state) that have been nominated by the governor of each state and approved by the Secretary of the Treasury that qualify for investment in business or property through QOFs. View a map of Opportunity Zones across the USA.
Qualified Opportunity Funds are unique investment vehicles that enable investors to take advantage of this new tax incentive enacted to encourage investment in businesses and property located in Opportunity Zones.
Specific tax incentives are offered to tax-payers that timely invest cash equal to their capital gains into Qualified Opportunity Funds based on the length of time their investment is held. Various tax incentives are offered to investors based on the length of time their investment is held in a Qualified Opportunity Fund. These tax incentives include:
Defer your capital gains until 2026
By investing in a Qualified Opportunity Fund you can defer your original capital gains until the earlier of December 31, 2026, or when your Opportunity Fund investment is sold (or generally otherwise disposed).
5-7 year hold: Discount on your original capital gains
Exclude 10% of your original capital gain from taxation if you hold your Qualified Opportunity Fund investment for at least 5 years. Exclude 15% of your gain if you hold for at least 7 years. (Under current law, in order to be eligible to the 7-year basis step-up, you must timely invest in a Qualified Opportunity Fund before December 31, 2019).
10 year hold: 100% Tax Free Gains on Fund Appreciation
If you hold your Opportunity Fund Investment for at least 10 years, you have the ability to structure your “exit” such that all of your post-acquisition gain from that reinvestment is 100% tax free (permanent exclusion of capital gains tax on Fund appreciation).
Exclude 10% of your original capital gain from taxation if you hold your investment for at least 5 years. Exclude 15% of your gain if you hold for at least 7 years (to be eligible for these exclusions, your 5-year and 7-year periods must end prior to the “inclusion date” for your original gain of December 31, 2026).