Qualified Opportunity Funds
Qualified Opportunity Funds
An “opportunity fund” is a type of investment vehicle created to invest in the growth of businesses or real estate located in what is referred to as “opportunity zones.”
Opportunity zones are specific geographical locations that the government has declared as being in an economically depressed state. Because of this, the economic regulations that apply to specific parts of the country or state could be different from those that apply to other parts. Opportunity zones provide investors with various tax breaks, including the postponement of capital gains taxes and possibly even their complete elimination.
How to Understand Qualified Opportunity Funds?
Opportunity funds were formed as part of the Tax Cuts and Jobs Act (TCJA) of 2017, which was passed to stimulate investment in underfunded communities with low incomes and in crisis. For a neighborhood to be referred to as an opportunity zone, it must first be recognized as such by the state. Then it must be confirmed by the secretary of the United States Treasury through the Internal Revenue Service (IRS).
A business or partnership can have its investment fund recognized by the government as a qualified opportunity fund by including a completed Form 8996 from the Internal Revenue Service (IRS) and its annual return for federal income tax purposes. After it has been designated, the fund must invest at least ninety percent of its total assets in opportunity zones to qualify for favorable tax treatment.
Qualified Opportunity Funds Tax Advantages
In addition to the possibility of postponing the taxation of earlier gains, a participant’s potential tax liability may decrease proportionately with the time they hold their investment in a qualified opportunity fund.
When an investment is held for more than five years, investors can obtain a 10% exclusion of the delayed gain on their investment.
Investors who keep their holdings for more than seven years are eligible for a 15% exclusion from their taxes.
After ten years, the investor is exempt from paying federal income taxes on the fund’s gain until it is sold.
It is possible that the rules and regulations governing investment in qualified opportunity funds and the taxation of such investments will be subject to change in the future. Opportunity funds have only been around for a short period, and the Trump administration, which was instrumental in their creation, is no longer in power. If an investor is interested in taking part, they should seek the advice of investment and tax professionals.
Where to Get Qualified Opportunity Zones?
All fifty states, the District of Columbia, and five territories recognize opportunity zones as a legal framework for economic development. The most up-to-date list of qualifying opportunity zones can be found on the U.S. Department of the Treasury’s website, which you can access by clicking here.
Census tract, county, and state identification numbers denote specific areas. Check the U.S. Census Bureau’s Geocoder to find the census tract number for a given address. Select “Public AR Current” from the list of datasets and type in the address you’re looking for.