What is an Opportunity Zone?
An Opportunity Zone is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
Localities qualify as opportunity zones if they have been nominated for the designation by a state, the District of Columbia, or a U.S. territory and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service (IRS).
Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.
They’re to be used as an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
Investors are Taking Notice
Due to immediate and long-term tax advantages Opportunity Zones are starting to attract more investors.
Unlike tax credit programs of the past, Opportunity Zone investments come with significantly fewer restrictions, which opens up access to the new investment option.
There is no limit on the number of Opportunity Funds that can exist, which means that there’s no cap on the number of investors who can participate or the amount of money that can be invested through an Opportunity Fund.
One large attraction to investors is the fact they can defer capital gains taxes on earnings from many types of investments up to 2027.
However, to qualify they must hold the Opportunity Fund investment through December 31, 2026.
If it is sold before 2027, the capital gain moved into the Opportunity Fund investment will become taxable the year that it’s realized.
By deferring tax payments, an investor can hold onto their capital longer and use it to boost earning potential to a greater degree than they would have been able to had they been liable for capital gain taxes the year that the gain was realized.
One popular question is there any chance the program will be discontinued by congress, thus changing the rules for investors?
Opportunity Zones have broad bipartisan support. The OZ designation is set to expire in 2028, however, tax benefits will remain until 2047.
Invest in Alabama
Through this program investors can help to transform many economically-challenged areas right here in our own state as well as abroad.
Currently the state of Alabama has 158 designated opportunity zones, including 153 low-income communities, plus 5 non-low-income contiguous tracts.
Here is some additional information for opportunity zones in other states:
Keep Us In Mind
If you find yourself needing commercial property valuations I hope you will consider Real Estate Matrix.
We are one of the leading commercial valuation firms in the Southeast.
Our coverage area includes all of Alabama, Georgia, Tennessee, Mississippi and the panhandle of Florida.
We offer services beyond evaluations such as valuations for estate and financial planning, real estate valuation litigation support, income property investment analyses, consultation services and much more.
Please visit our website for more information on our firm and an extensive list of services www.realestatematrix.com.
If I can be of service to you please don’t hesitate to call, my direct line is (205) 453-0180.
J. Craig Stephens, MAI, MRICS