Opportunity Zone Tax Deadline Looming

The Opportunity Zone was introduced in 2017 as part of the Tax Cuts and Jobs Act, click here to see the archived article for more details on this tax incentive.

The Opportunity Zone is an investment vehicle created by Congress in the most recent overhaul of the tax code. The Opportunity Zone Funds are investments in targeted, designated low-income areas of the country and come with significant tax incentives, including a reduction in capital gains on the investment. One of these potential capital gain reductions will disappear by the end of 2019. 

How the potential capital gain reduction works for an Opportunity Zone investment is if a taxpayer sells an asset with a capital gain and then elects to defer that gain and invest in a qualified Opportunity Zone, they can reduce their capital gain. If the investor still holds the fund by December 31, 2026, and held the investment for five or seven years, they can reduce their capital gain- ten percent reduction if held for five years and 15 percent reduction if held for seven years.

The seven-year period will close if the investment is not made by the end of 2019. However, the five-year holding period will still be available until 2021. And if the investor holds the investment for at least ten years and then sells it, they pay no additional gain beyond the initial deferred gain.

There are a lot of potential pitfalls in the Opportunity Zone rules, so investment experts recommend making sure you do your due diligence as an investor. As one advisor expressed, don’t make a bad investment to get some potential capital gain break- a bad investment may not yield any capital gain.

The tax rules for the new Opportunity Zone investment are very complicated, so please consult with your professional tax advisor if you have questions on these rules.