Investing in a Qualified Opportunity Zone FAQS
The most recent Republican Tax Bill has opened up a new opportunity for investors and startups alike — how can you best use this in collaboration with State and Federal initiatives to invest in your community?
Providing preferential tax incentives to investors
The Investing in Opportunity Act offers tax incentives to help appeal to long-term investors into parts of the country struggling with high poverty, job creation and business growth. We see this as a tremendous area of growth and collaboration between tech, education, and government spheres.
Reviewing the Tax Cuts and Jobs Act of 2017, specifically the section on Opportunity Zones and Qualified Opportunity Funds — we are able to guide investors and those who will end up with hefty capital gains taxes from 2018 to reinvest their money by creating a Qualified Opportunity Fund that adds value to an impoverished area.
Back it up — what is a Qualified Opportunity Zone? or Qualified Opportunity Fund?
A Qualified Opportunity Fund (QOF) is an investment vehicle to help fund assets within the Qualified Opportunity Zone (QOZ). Whether funded by individuals, partnerships or corporations, they are the people receiving the tax breaks. In order to create a QOF, 90% of assets that are invested in must be put to work be within a QOZ. You must complete and file IRS Form 8996 Annually (Currently in draft form updated: Dec.3, 2018), and the group operating the fund must be a Corporation or Partnership.
A Qualified Opportunity Zone (QOZ) is an area determined by a collaboration between a the Governors of each state and the U.S. Treasury Dept. collaboration of the state and federal government with the intention to spur economic development and create jobs in distressed communities.
Why invest in opportunity zones?
- Temporary Deferral of your Capital Gains Tax until 2026 — while simultaneously gaining a return on your investment.
- A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation. investment in an Opportunity Fund.
- A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years.
The Investing in Opportunity Act’s Genesis in Tech.
Pushed by Napster founder and tech mogul, Sean Parker in collaboration with Senator Tim Scott, the tax bill is drawing significant appeal from venture capitalists and tech one-percenters alike. We’ve seen an influx of firms targeting tech startups in the designated Qualified Opportunity Zones. We are proud to collaborate with those working within an Opportunity Zone and their investors.
We cannot ignore the fact that Sean Parker and his think tank — Economic Innovation Group — was the leading factor behind how this tax reform was created. It’s hard to imagine that the tech one-percenters were only thinking about real estate deals when creating the idea behind this tax act. While we are still awaiting clarification from the IRS and expect to for some time going forward, we need to continuously be cross-referencing existing partnership tax laws and begin to get creative in order to change societal structures and pave the way for socially responsible investing. We think that both can accomplished.
For more information about Opportunity Zones and how they may be of benefit to you, please visit cliftand.co/opportunity-zones
