Economic development consultants are always looking out for new ways to improve communities and reduce the amount of taxes investors pay. One of the best programs to help achieve this is the development of opportunity zones. Today, cities are tasked with attracting investors and preparing themselves for potential investment infusions. They also need to market their zones for development. So, as an investor, what do you need to know about opportunity zones?
When were opportunity zones developed?
These zones were developed in 2017. They came about to bridge the uneven gap caused by the economic recession of 2007 to 2009. You see, the United States did recover from the recession and is often celebrated as for this, rightfully so. However, there are still tons of neglected communities while the rest of the economy continues to expand and thrive.
When you take a closer look, job distributions, wage gains, and businesses are concentrated in urban areas, which is where the economic recovery focused its effort. In fact, at least a quarter of all jobs and businesses lost to the recession had been recovered by the end of 2016. However, regional inequality still poses a challenge. An opportunity zone is the first step to address this gap.
How do opportunity zones work?
After the Tax act and Jobs Act of 2017 established opportunity zones, investors started paying attention to low- and medium-income areas and saw them as a potential investment. This has greatly impacted low-income communities in the country. Perhaps the greatest benefit you will enjoy as an investor is tax breaks. But, you must invest in qualifies opportunity zone for this to happen. Each state designates these qualified opportunity zones. So, be sure to read the act and know which zones are qualified.
That’s not all. Besides investing in qualifies zones, you must follow the rules of investment as stipulated in the Ta Act and Job Act of 2017. Also, as an investor, you can defer tax on any prior gains until the earliest date of selling an investment or exchanging it. For most people, this is 2026. But, to do this, you must reinvest in a qualified opportunity fund real estate.
Another benefit you get is having an increase in the basis equal to the market value of your investment when you sell or exchange the opportunity fund. However, you must hold your fund for at least 10 years for you to earn this benefit. If you think about it, 10 years isn’t such a long time to invest.
Still on the issue of taxes. The IRS will defer you or any investor from paying taxes on capital gains from your other ventures only when you invest these gains in a qualified opportunity fund real estate. 90% of your assets must focus on businesses or properties within a low-income community.
With all these benefits, it’s easy to see why people are interested in investing in opportunity zones. To have a qualified fund, all you need to do is self-certify by completing a form and attach it to your income tax for the taxable year.