What Are Opportunity Zones and How Do They Work?

In 2017, Congress established a new community development program called “Opportunity Zones” within the Tax Cuts and Jobs Act of 2017. This program was founded to encourage long-term investments in low-income urban and rural communities through the United States.

Individuals and businesses with capital gains can qualify for this program. The goal is to make funds accessible to both large investments and low-income communities. Below, we list three tax benefits for investing in low-income communities through a qualified opportunity fund:

1. Temporary Deferral

Investors can place existing assets with accumulated capital gains into Opportunity Funds. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or until the end of 2026.

2. Tax Impact

Capital gains that have been placed in an Opportunity Fund for 5 years will receive a 10 percent tax reduction on the gain. An additional 5 percent reduction in tax will apply if the capital gains are held for 7 years. {Continue Reading}