What is an Opportunity Zone? This is the new real estate rage. To spur investment in places investors might otherwise overlook, a program was designed to provide tax incentives to developers to invest in low-income distressed neighborhoods. In June of 2018, 8,700 communities designated in the U.S., with 30 in Broward, 67 in Miami-Dade, and 427 in all of Florida.
Benefits? Investors or developers may defer and possibly forgo paying capital gains taxes, or taxes resulting from the sale of certain types of assets. The program also encourages new construction, providing the biggest tax break to investors who keep money in these zones for at least 10 years.
Qualifications? The guidelines are written broadly so almost any can qualify, exceptions include: private or commercial golf courses, massage parlors, tanning salons, and gambling facilities to name a few. Multifamily properties, warehouses, and self-storage facilities make the most sense, because the program encourages investors to hold properties for at least 10 years.
How to invest? Investors cannot put money directly into a specific project or business in these zones. Instead, they have to invest in what are called “Qualified Opportunity Funds” that holds at least 90% of its assets in opportunity zone property.
What to invest? To defer a gain, a taxpayer has 180 days from the date of sale or exchange of appreciated property to invest realized gain into a Qualified Opportunity Fund. The taxpayer may invest return of principal as well, but only the investment attributable to the capital gain portion will be eligible for the tax exemption. The program allows for the sale of any appreciated assets, such as stock with a reinvestment of the gain into an Qualified Opportunity Fund. There is no requirement to invest in a like-kind property to defer the gain.
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