Opportunity Zones – An Expert’s Take on What You Need to Know

By Kim Hartsock, Warren Averett

The Opportunity Zones program was established by Congress in the Tax Cut and Jobs Act as an innovative approach to spurring economic development. It does so by providing tax benefits for long-term private sector investments in low-income urban and rural communities nationwide. You don’t have to live or own property in a Qualified Opportunity Zone to receive tax benefits. Anyone with capital gains from the sale of stock or property can invest in an Opportunity Zone fund and potentially receive tax benefits.

Three ways to receive a tax benefit through the Opportunity Zones program:

  1. Temporary Deferral: A taxpayer can invest their gain into an Opportunity Zone fund and defer the tax on their gains until December 31, 2026. The original deferred gain must be recognized on whichever comes first—the date on which the Opportunity Zone investment is disposed of or December 31,
  2. Step-up in Basis: If investors hold their investments in Opportunity Zone funds for five or seven years, a portion of the original deferred gains will be permanently forgiven. If investors hold funds for five years, they will have 10 percent of the original deferred gain forgiven. Investors who hold funds for seven years will have 15 percent of the original deferred gain
  3. Permanent Exclusion: If the investment is held for at least 10 years, any appreciation on the Opportunity Zone investment will be excluded from tax when the investment is sold.

Opportunity Zone Funds

To receive these tax incentives, taxpayers invest in a Qualified Opportunity Zone funds. The funds then invest in qualified businesses and properties located in Opportunity Zones. Opportunity Zones have been identified by each state’s governor and approved by the U.S. Treasury.

Visit www.warrenaverett.com/opportunityzones to view the Opportunity Zones.

Qualified Opportunity Funds—What You Need To Know

  • Qualified Opportunity Zone funds must maintain 90% of its assets in Qualified Opportunity Zone property. These funds will be subject to semi-annual testing to confirm compliance with this 90% asset
  • Qualified Opportunity Zone funds must be a partnership or corporation that self-certifies with the IRS using Form 8996
  • To qualify as Opportunity Zone property, Qualified Opportunity Zone funds must have acquired the property after 12/31/17, and either the property’s original use must begin in the Opportunity Zone or the fund must substantially improve the property. Substantial improvements are defined as investing an amount equal to the acquisition cost of the property less the amount allocated to land.
  • Qualified Opportunity Zone property includes:
    • Qualified Opportunity Zone Stock
    • Qualified Opportunity Zone Partnership Interest
    • Qualified Opportunity Zone Business Property

As a member of Warren Averett, Kim Hartsock is positioned as a leader, connector and strategist within the firm, who offers a unique blend of strategic business advisory solutions. Read more about her and the firm at warrenaverett.com

About Warren Averett

Warren Averett is one of the largest accounting firms in the Southeastern region, and ranks among the top 35 firms in the United States. With 800 employees and 350 CPAs, Warren Averett offers depth and experience in a variety of industries including healthcare, manufacturing, financial services, construction, real estate, aerospace and defense, life sciences and technology, nonprofit and public sector, with services that span beyond audit and tax to include wealth management, staffing and recruiting, technology consulting, financial outsourcing, retirement plan administration and investments. Their 15 office locations include Birmingham, Huntsville, Mobile, Montgomery, Cullman, Anniston and Foley, Alabama; Panama City, Pensacola, Fort Walton Beach, Destin and Tampa, Florida; Atlanta, Georgia; and affiliate offices in Houston, Texas and the Cayman Islands. To learn more about the firm, visit www.warrenaverett.com.

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