Qualified Opportunity Zones: Benefits

What are the potential benefits of Quality Opportunity Zone funds?

Qualified Opportunity Zone (QOZ) funds are unique investment vehicles that provide tax incentives for individual investors who invest new capital in businesses owned or located in distressed communities. QOZ funds offer several potential benefits.

Potential tax benefits

An individual who invests in a QOZ fund is eligible for favorable tax treatment in the form of both capital gains deferral and federal income tax elimination on appreciation. Current law allows QOZ fund investors to defer paying taxes on their investments for realized capital gains that occurred on or before the 2026 tax year. If a QOZ fund investment is held for 10 years, investors receive a step-up in basis and any appreciation on their investment becomes tax-free (through the end of 2047).

Long-term portfolio growth

Many investors choose tax-advantaged QOZ funds to help them position their portfolios for long-term growth. By the end of 2020, some 21,000 individual investors helped raise roughly $48 billion in QOZ equity investments since the QOZ program became a part of the tax code in 2017.1

They are less complicated than completing a 1031 Exchange

Keeping in mind that different investors have different financial needs and goals, many investors choose QOZ funds over 1031 Exchanges because:

 

  • QOZ fund investors need only invest the eligible gains from the sale of an appreciated asset to receive a step-up in basis, whereas 1031 Exchanges require individuals to invest all proceeds from the sale of a property to enjoy full tax deferral.
  • QOZ fund investments are much simpler than a 1031 exchange because there is no 45-day identification period and no qualified intermediary involved in the transaction.

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