5 Steps to Invest in an Opportunity Zone
Published 02-17-2019

In order to avoid paying Uncle Sam on the profit you made on that stock portfolio, property, or other investment that would have usually triggered the capital gains tax (currently up to 20%), you can re-invest that money into an investment property in a designated Opportunity Zone in order to defer, decrease, or even eliminate it (depending on how long you hold the property).

Created by the Tax Cuts and Jobs Act in 2017 and officially designated in 2018, Opportunity Zones are areas that have been identified as “economically distressed” and in need fresh investment money in order to breathe new life into the community. They are designed to spur economic development by providing tax benefits to investors so that more money will poured in the communities and jobs will be created.

Here Are the 5 Steps to Invest in Opportunity Zones:

  1. Sell Your Investments That Would Have Capital Gains. Self-explanatory; you won’t need to mitigate capital gains if your investment had losses.

  2. Identify an Investment Property within the One of the Designated Opportunity Zones. A map of the designated Opportunity Zones can be found here.

  3. Create a Qualified Opportunity Fund (QOF). Establish an eligible corporation, partnership, or LLC and certify it by filing Form 8996 with its federal income tax return. The return with Form 8996 must be filed on-time, taking extensions into account.

  4. Purchase the Property within 180 Days of your Profitable Investment Sale. This is a hard deadline--Don’t miss it. Also, 90% of the assets in the QOF (equity, not debt) must be invested into a qualified opportunity zone property.

  5. Hold the Property as Long as You Can Stand It (up to 10 Years). Investors can defer tax on any capital gains invested in a QOF until the earlier of: 1) the date on which the investment in a QOF is sold or exchanged, or 2) December 31, 2026. In the event the investment is held for over 5 years, there is a 10% exclusion of the deferred gain. If held for over 7 years, there is a 15% exclusion. If the investor holds the property for over 10 years, the investor is eligible for s step-up in the tax basis equal to the fair market value (FMV) on the date that the property is sold or exchanged. Need an example of how this works? There’s a great one here.

Need more info? Stay up-to-date as more information is released directly from the IRS or Treasury Department.

About the Author

Leanne is a JD/MBA and works as a Managing Director for Commercial Loan Direct, specializing in large balance transactions, portfolio loans, and complex financing structures. When not negotiating the best deals for her clients, you can find Leanne in the yoga studio or snowboarding up in the Rockies.