We have compiled valuable information below from credible sources such as Internal Revenue Service and HUD to help you understand Qualified Opportunity Zones & the Tax Benefits associated with them.
In this article we will be discussing the following:
- What is an opportunity Zone?
- What are Opportunity Zone Tax Benefits?
- Opportunity Zone Maps for US and States
- Opportunity Zone Funds
- Opportunity Zone Business
What is an Opportunity Zone?
Opportunity Zones sometimes called Qualified Opportunity Zones(QOZ) were added to tax code when Tax Cuts and Jobs Act passed on December 22, 2017.
Opportunity Zones are typically communities and Areas of the State and US that are financially distressed and under Tax Cuts and Jobs Act get preferential tax treatment. Each state nominated certain of the state that needed economic boost and were added to this federal
Opportunity Zones Tax Benefits
If you invest your Capital and 1231 Gains in Opportunity Zones you can get preferential treatment in taxes.
Both capital gains and qualified 1231 gains Qualify to be defer using Opportunity Zones that needed to be taxable before Dec 31, 2027. These gains can be deferred using Qualified Opportunity Zone Fund and eventually reduced or eliminated.
Requirements for Opportunity Zones
- 180 Days time limit to Invest in the QOZ Fund.
- Use Qualified Opportunity Zone Fund and File 8996 Form with IRS
- Substantially Improve the Property in 30 Month Period
- Hold the Property for 5, 7 or 10 year period to reduce or eliminate tax gains for substantial tax savings.
- Must be an original use property.
Learn more about QOZ by visiting IRS website here
Opportunity Zones Maps
Here is the Link to the Opportunity Zones Map(located on website www.hud.gov) for the Entire US.
You can Select a State from the Drop Down Map to select a particular State for example California
Opportunity Zones Funds
Opportunity Zone Funds is an entity that is either taxed as either a partnership or corporation that is setup to invest in a Qualified Opportunity Fund. Furthermore, This Entity also elects to self certify that it is a Qualified Opportunity Fund.
Opportunity Zones Business
It is a Requirement that a OZB business must earn at least 50 percent of its gross income from business activities within a Qualified opportunity Zone.
IRS provide three safe harbors that a business may use to meet this test. In order for Safe Harbor Requirements to work, if these Conditions needs to be satisfied:
- At least half of the aggregate hours of services received by the business were performed in a QOZ;
- Whether at least half of the aggregate amounts that the business paid for services were for services performed in a Qualified Opportunity Zone; or
- Whether tangible property and main business functions were located in a Qualified Opportunity Zone.
Learn More about how to save taxes by deferring Capital gains using 1031 exchange by visiting our in depth article here