The Opportunity Zones Program, as created in the Tax Cuts and Jobs Act of 2017, enables taxpayers to reduce and temporarily defer federal taxes on the proceeds of selling investments with unrealized capital gains, in exchange for providing equity investments in small businesses and real estate in distressed communities.
- Temporary Deferral of Capital Gains Taxes
You will not be taxed on the gains invested in an Opportunity Fund until you exit the fund or December 31, 2026, whichever comes first. This is similar to a 1031 exchange.
- Step Up in Basis in Years 5 & 7
Investments held for a minimum of 5 years will be taxed at reduced rates – 90% for investments held at least 5 years (10% basis increase) and 85% for investments held at least 7 years (15% basis increase).
- Tax-Free Earnings After Year 10
If you hold an investment for 10 years, gains accrued on your Opportunity Fund investment during that 10-year period will not be taxed. It’s a permanent exclusion from taxable income.
How SD Associates P.C., CPA’s Can Help
- Tracking basis in the investments
- IRS compliance with opportunity zone requirements
- Tax preparation and planning
- Financial statement preparation
- Accounting system set up
- Property valuation assistance
- Project forecasting and projections
- Bank financing and loan structuring assistance
- Entity structure review
- Business planning