Qualified Opportunity Zones

Are you a real estate investor looking for a new way to maximize your returns? Qualified Opportunity Zones (QOZs) may be your perfect investment opportunity.

John Berlet, Fund Manager of Coastal Bend OZ Fund LLC, recently gave a presentation titled: Qualified Opportunity Zones at the Royal Investing. The information overviews the benefits of investing in Opportunity Zones and how to get started.

This article will explore QOZs, how they work, and how investors can exploit them. We'll also discuss the potential tax benefits of investing in QOZs and provide some tips on getting started.

What Is A Qualified Opportunity Zone?

Qualified Opportunity Zones (QOZs) are economically distressed communities where new investments may be eligible for preferential tax treatment.

• Designated by the federal government and must meet specific criteria to qualify.
• Offer federal tax incentives for investing unrecognized capital gains in Qualified Opportunity Funds (QOFs).
• Businesses must have substantially all of their tangible property located within a QOZ and use that property in a trade or business of the QOF.
• An unrelated party must purchase the property after December 31, 2017.
• Must have at least 50% of their gross income derived from active conduct within the zone or having a substantial portion of their intangible property used in the location.
• Benefit from reduced taxes on capital gains and other incentives.
• Provide an opportunity for investors to help revitalize economically distressed communities while receiving significant tax benefits.

Tax Benefits Of The QOZ Program

The Qualified Opportunity Zone (QOZ) program was created in 2017 as part of the Tax Cuts and Jobs Act to encourage economic growth in underserved communities. 

The program provides tax incentives for investors who make long-term investments in these areas:

• The QOZ program offers taxpayers potential federal capital gains tax deferral, reduction, or even elimination on qualifying investments.
• Investors can benefit from reduced capital gains taxes and permanent exclusion of capital gains taxes on specific investments.
• The QOZ program spurs long-term investment and economic development in low-income communities by providing private funding that can help create jobs, increase wages, and improve infrastructure.
• It also encourages businesses to invest in these areas by offering them access to the capital they may not have had before.

Benefits Of Investing QOZs

Qualified Opportunity Zones (QOZs) offer long-term investment opportunities for taxpayers looking to defer and reduce capital gains taxes:

• Investing in Qualified Opportunity Zones (QOZs) can provide potential federal capital gains tax incentives for investing in economically distressed communities.
• A Qualified Opportunity Fund (QOF) invests in qualified opportunity zone property.
• Investors can benefit from deferred and reduced capital gains taxes and potentially no tax on the appreciation of their QOF investment upon disposition of that investment.
• Depending on the location of the QOZ, investors may also receive additional benefits such as state and local tax credits, grants, and other incentives.
• Investing in QOZs can provide investors with significant long-term financial benefits while helping revitalize economically distressed communities.

How To Find Investment Opportunities

QOZ investing can be a great way to impact the community while earning tax benefits positively. To qualify for QOZ investing, low-income communities, and certain neighboring areas must meet specific population requirements defined by census tracts.

To identify eligible census tracts for QOZ investing, you'll need to look at the list of designated Opportunity Zones released by the Secretary of the Treasury in July 2018: 

• HUD's website has a list.
• Novogradac Opportunity Zones Mapping Tool provides an interactive map that allows users to view these qualified census tracts.

How To Form A Qualified Opportunity Fund

Forming a qualified opportunity fund (QOF) is essential for investors looking to take advantage of the tax benefits of investing in designated opportunity zones. The process involves filing IRS Form 8996 and submitting it with your federal income tax return.

Once you have filed Form 8996, you will need to make sure that your fund meets the following requirements set forth by the IRS:

• Invest at least 90% of its assets into qualified opportunity zone property.
• Meet specific holding period requirements.
• Certify that your fund is a QOF annually by filing Form 8996 each year with your federal income tax return.

Key Takeaways

Qualified Opportunity Zones (QOZs) offer real estate investors a unique opportunity to invest in economically distressed communities and receive preferential tax treatment.

The program encourages investment by allowing investors to defer capital gains taxes on their investments and offering the potential for permanently excluding capital gains taxes if they hold their assets for at least ten years.

QOZs provide several other benefits, such as:

• Tax-free appreciation on investments
• Reduced basis step-up when selling assets
• An ability to reinvest proceeds from sales into other QOZs without paying capital gains taxes

These advantages make QOZs an attractive option for real estate investors looking to maximize their returns while helping to revitalize local economies. 

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