OPPORTUNITY ZONEs

A.  A QOZ is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as QOZs if they were nominated for that designation by a state, the District of Columbia, or a U.S. territory and that nomination was certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service (IRS).

A. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.

A. No.  The first set of QOZ designations, covering parts of 18 states, was designated on April 9, 2018.  QOZs have been designated to cover parts of all 50 states, the District of Columbia, and 5 U.S. territories.

A. QOZs are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.

A. QOZs are designed to spur economic development by providing tax incentives for investors who invest new capital in businesses operating in one or more QOZs.

• First, an investor can defer tax on any prior eligible gain to the extent that a corresponding amount is timely invested in a Qualified Opportunity Fund (QOF).  The deferral lasts until the earlier of the date on which the investment in the QOF is sold or exchanged, or December 31, 2026.  If the QOF investment is held for at least 5 years, there is a 10% exclusion of the deferred gain.  If held for at least 7 years, the 10% exclusion becomes 15%. 
• Second, if the investor holds the investment in the QOF for at least 10 years, the investor is eligible for an adjustment in the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.  As a result of this basis adjustment, the appreciation in the QOF investment is never taxed.  A similar rule applies to exclude the QOF investor’s share of gain and loss from sales of QOF assets. 

A. No.  You can take advantage of these tax incentives even if you don’t live, work, or have an existing business in a QOZ.  All you need to do is invest the amount of a recognized eligible gain in a QOF and elect to defer the tax on that gain.

A. Yes.  The list of each QOZ can be found in IRS Notices 2018-48PDF and 2019-42PDF.  Further, a visual map of the census tracts designated as QOZs may be found at Opportunity Zones Resources.

https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions