Qualified Opportunity Zones: Overview
The Qualified Opportunity Zone (QOZ) program was created to revitalize economically distressed communities using private investments rather than taxpayer dollars. In return, investors participating in the program may receive potentially significant tax benefits and enjoy optimized returns on capital gains.
Qualified Opportunity Zone Funds Invest in QOZs
Investors who are interested in positioning their portfolios for long-term growth and favorable tax treatment often invest in QOZ funds. A QOZ fund is an investment vehicle typically organized as a corporation or a partnership that holds at least 90% of its assets in QOZ property.
QOZ fund investors are eligible for favorable tax treatment in the form of both capital gains deferral and elimination of taxes on the growth of their investments.
When an investor sells or exchanges an appreciated asset (not limited to a real estate asset) that triggers a capital gain, the investor has 180 days to invest an equal or lesser amount of those gains in a QOZ fund to potentially defer taxation.
Investors who hold their interest in a QOZ fund for at least 10 years pay no federal income tax on the appreciation of their QOZ fund investment once it’s sold, regardless of the amount of potential profit.
The QOZ program was created by the federal government in 2017 as part of the Tax Cuts and Jobs Act. The program established Qualified Opportunity Zones, which are census tracts designated by each state’s governor as areas in need of revitalization and in which investors may potentially enjoy tax advantages under the program. There are more than 8,700 of these qualified opportunity zones in urban, suburban, and rural communities across the United States.1
