What are Opportunity Funds?
Opportunity Funds are either a partnership or corporation that invests in eligible property located in an Opportunity Zone. An Opportunity Zone is an economically challenged area where certain new investments receive preferential tax treatment. A location qualifies as after a State has nominated the area and the Secretary of the U.S. Treasury certifies the area as an Opportunity Zone.
How can investing in Opportunity Funds benefit me?
Under the Tax Cuts and Jobs Act, any gain from a sale or exchange of property to an unrelated person can be excluded from income if invested within 180 days of the sale. The gain is excluded from gross income until the earlier of the date the investment in the Opportunity Fund is sold or December 31, 2026. In addition, any gains generated by the fund after investment can receive a permanent exclusion if the investment is held at least 10 years. Any gain reinvested in the fund receives a 10% exclusion if left in the fund for 5 years, and 15% if held for 7 years.
Another benefit of the tax break is a taxpayer is not required to invest all the proceeds from a sale into the fund, but only the gain. Furthermore, this gain can be any kind of gain, such as short-term or long-term capital gain, ordinary gain, and section 1231 gain, as long as the gain is associated with the disposition of property.
You defer the gain by making an election on your Federal Income Tax return for the year the gain is reportable. If you paid tax on gain reportable on your 2017 tax return and you reinvested the gain within 180 days, you can amend your 2017 return, elect to defer the gain, a receive a refund of the tax previously paid on the gain.
A page listing opportunity zones can be found at: https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx