Qualified Opportunity Zones
Qualified Opportunity Zones (QOZs) were created within the 2017 Tax Cuts and Jobs Act. The intent of the QOZ program is to identify and help revitalize economically disadvantaged communities using private investments versus taxpayer dollars.
Private investors who invest eligible capital into a QOZ interest could earn significant tax benefits if held for certain minimum lengths of time.
There are over 8,700 QOZs currently identified throughout the United States.
QOZ Risk Factors to Consider
There are substantial risks associated with the U.S. federal income tax aspects of a purchasing interests in a qualified opportunity fund. The following risk factors summarize some of the tax risks to an investor. All prospective investors are strongly encouraged to consult with and rely on their own tax advisors. The tax discussion here is not intended, and should not be construed, as tax advice to any potential investor.
- There is a lack of precedent and limited guidance related to qualified opportunity funds.
- A program intended to qualify as a qualified opportunity fund may not constitute a qualified opportunity fund for a variety of reasons, including a failure to substantially improve the property within the first 30 months of its operation. If a fund does not qualify as a qualified opportunity fund, then no deferral or elimination of taxable gain will be available to the its members.
- An investor must acquire his or her interest in a qualified opportunity fund on or before December 31, 2019 in order to receive a step-up in basis equal to 15% of the gain deferred by reason of the investment in the fund.
- Investors who hold interests in a qualified opportunity fund through December 31, 2026, and who have deferred gain through that time by acquiring such interests, will automatically recognize some or all of the federal income tax gain that they deferred on December 31, 2026.
- The state, local and other tax implications of a qualified opportunity zone investment are unclear.