What is an Opportunity Zone?
Opportunity Zones are a federal economic development and community development tax benefit established as part of the 2017 Tax Cuts and Jobs Act available to investors with capital gains designed to encourage long-term private investment in low-income urban, suburban and rural census tracts.
The zones were nominated by each governor in the spring of 2018 and are comprised of low-income census tracts. Zones were eligible for nomination based on 2015 and 2016 American Community Survey data. Virginia had 901 eligible census tracts, and per the Tax and Jobs Act, each state was only able to nominate 25 percent or 212 tracts, and could have up to 5 percent or 11 as contiguous tracts. Virginia nominated the maximum number of census tracts allotted. The designations are permanent until Dec. 31, 2028.
- Temporary tax deferral of capital gains reinvested into a Qualified Opportunity Zone Fund. The deferred gain must be recognized on the earlier of the disposition of the investment or Dec. 31, 2026.
- Step-up in basis, which the initial basis in a Qualified Opportunity Zone investment starts at zero. The basis increases by 10 percent with a holding period of five years, and by an additional 5 percent if held for at least seven years, excluding up to 15 percent of the original gain from taxation.
- Permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. The basis of investment at the time of sale is increased to the fair market value. @(Model.BulletStyle == CivicPlus.Entities.Modules.Layout.Enums.BulletStyle.Decimal ? "ol" : "ul")>
- Qualified opportunity zone stock acquired after Dec. 31, 2017
- Capital or profits interest in a domestic partnership acquired after Dec. 31, 2017
- Qualified opportunity zone business property acquired after Dec. 31, 2017
- Qualified opportunity zone business @(Model.BulletStyle == CivicPlus.Entities.Modules.Layout.Enums.BulletStyle.Decimal ? "ol" : "ul")>
- Private-sector investment vehicles that invest at least 90 percent of their capital in Opportunity Zones.
- Must be set up as a partnership or LLC.
- A taxpayer must self-certify on their tax return by completing a form to create an Opportunity Fund. A draft form has been released by the U.S. Treasury.
- Equity investment derived from an investor’s capital gains from a prior investment. @(Model.BulletStyle == CivicPlus.Entities.Modules.Layout.Enums.BulletStyle.Decimal ? "ol" : "ul")>