What is a Federal Opportunity Zone?
Created by the Tax Cuts and Jobs Act, the Opportunity Zone program is a congressional attempt to promote investments in certain economically-distressed communities (an “Opportunity Zone”), thereby spurring economic development and job creation, by providing eligible new investments preferential tax treatment. The law allows taxpayers to defer until 2026 taxes on profits from the sale of property, if the profits from the sale are invested in an Opportunity Zone fund that invests in businesses in a targeted community. It also allows taxpayers to exclude any gains that arise from investing in a Qualified Opportunity Zone Fund if the fund is held for 10 years. These funds, in turn, pool money from investors and invest in businesses and real estate development projects located in these Opportunity Zones.
How Many Opportunity Zones Are There?
The first Opportunity Zones were designated on April 9, 2018. To date, the Treasury Department has certified more than 8,700 Opportunity Zones spanning 50 states, the District of Columbia, and five U.S. territories qualifying for the aforementioned tax benefits.
What is a Qualified Opportunity Zone Fund?
A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone. Also, an LLC may qualify if it elects to be treated as a partnership or corporation for federal tax purposes. A Qualified Opportunity Fund is any of these entities that intend to invest at least 90% of its holdings in one or more qualified Opportunity Zones.
How Do You Establish A Qualified Opportunity Zone Fund?
To become a Qualified Opportunity Zone Fund, an eligible corporation or partnership should self-certify. An eligible corporation or partnership may self-certify by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return for the taxable year. The return with Form 8996 must be filed on an annual basis and in a timely manner, taking extensions into account.
To comply, the Qualified Opportunity Fund must hold at least 90 percent of its assets in Qualified Opportunity Zone Property (property used in a trade or business that is conducted in the Opportunity Zone purchased by the Qualified Opportunity Zone Fund after December 31, 2017).