Qualified Opportunity Zones (QOZs) offer tax incentives to spur investment in economically distressed areas. Established by the Tax Cuts and Jobs Act (TCJA), this program encourages taxpayers to invest capital gains in these zones through Qualified Opportunity Funds (QOFs), promoting economic growth and job creation.
Key Highlights:
- Tax Benefits: Investors can defer tax on capital gains by investing those gains in a QOF. Tax benefits increase based on the length of time the investment is held.
- Holding the investment for five years increases the basis by 10%.
- Holding it for seven years increases the basis by 15%.
- After 10 years, investors can adjust the basis to the fair market value, potentially excluding gains from taxes.
- Eligibility and Deferral: Only certain capital gains realized before 2027 are eligible to qualify, and they must be reinvested promptly in a QOF, providing the taxpayer with an equity interest.
- Investor Reporting Requirements: Investors who hold a QOF investment at any point in the tax year must submit Form 8997 with their tax return. Failure to do so may trigger an “inclusion event,” ending the tax deferral.
- Qualified Opportunity Funds (QOF): QOFs are corporations or partnerships organized to invest in QOZ properties. These funds self-certify through Form 8996 and must maintain at least 90% of their assets in QOZ properties. If they do not meet this threshold, they face penalties.
- Qualified Opportunity Zone Property: This includes tangible property or equity interests in businesses operating within a QOZ acquired after 2017. To qualify, the property must either be newly used or substantially improved within the zone.
- QOZ Business Requirements: To be classified as a QOZ business, at least 50% of gross income must be generated within the QOZ, met through location-based safe harbors relating to services, expenditures, or property location.
Qualified Opportunity Zones are designed to boost economic development in under-resourced areas by incentivizing long-term investments and offering significant tax benefits to investors committed to these communities. Contact your Stephano Slack tax manager or partner at 610-687-1600 or [email protected] to discuss how you can benefit.
Author Joshua Greenbaum, CPA, is a manager in Stephano Slack’s Marlton, NJ office, bringing extensive tax and audit expertise to his clients. Known for his collaborative approach, Josh works closely with individuals at every level, from business owners to bookkeepers. He simplifies complex financial issues, helping clients make informed decisions with confidence. Josh’s dedication to maximizing client benefits shines in times of uncertainty. With his expertise in navigating complex programs and strategies, Josh helps clients secure optimal outcomes even in challenging circumstances. He can be contacted at 856-489-0222 ext. 3415 or [email protected].
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