Among the tax code changes brought on by the Tax Cuts and Jobs Act of 2017 is a new tax-lowering investment tool called Qualified Opportunity Zones. Those willing to invest long-term in these Qualified Opportunity Zones, which are communities that are deemed economically distressed, receive special tax advantages. The longer you invest, the more tax savings you earn.
For the biggest tax advantage, invest the sale of capital gains you may have made elsewhere. The IRS will allow you to defer taxes on those gains as long as they are invested in a Qualified Opportunity Fund (QOF) within 180 days of the sale. This QOF can be set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
According to the IRS, if the QOF is:
- Held for longer than five years, 10% of the gains are tax free.
- Held for more than seven years, 15% of the gains are tax free.
- Held for 10 years or more, the investor is eligible for an increase in basis equal to the fund’s fair market value on the date it’s sold or exchanged (which means 100% of the gains could be tax free).
Qualified Opportunity Zones are still being evaluated and approved (8,769 as of 12/14/18), but you can already find them scattered all over the U.S., District of Columbia and U.S. territories. In fact, there are more than 600 designated in Texas alone, with 24 being located throughout San Antonio and Bexar County. You don’t need to live, work or have a business anywhere near a particular Qualified Opportunity Zone to invest in it, but, if you’re in the San Antonio area and would like to keep your money close to home, take a look at these areas in need. View all other areas here.
For questions about investing in Qualified Opportunity Zones through a QOF, feel free to contact us.
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