There’s been a lot of talk about “Opportunity Zones” on the news. But what are they, and how might they apply to you? One of my clients recently informed me that he sold his home in San Diego for 1.6 million dollars. It was his primary residence, and he moved into his secondary home in Nevada. Rather than invest all the proceeds from his San Diego home into a diversified portfolio of stocks and bonds, he asked about Opportunity Zones. He’s always been interested in social impact investing, and he’d heard that Opportunity Zones offered tax incentives while creating a social benefit in economically distressed areas across the United States.
What are Opportunity Zones?
According to the IRS.gov website, the Tax Cuts and Jobs Act of 2017 established Opportunity Zones as a new community development program to bolster the economy. The goal of Opportunity Zones is to encourage long-term investment, specifically in low-income urban and rural areas throughout the country.
What are the Benefits?
Several tax benefits encourage Opportunity Zone investing. Tax incentives are designed to encourage long-term investment by the reinvestment of capital gains.
The first benefit offers a temporary deferral of taxable income. This incentive is only for capital gains that are reinvested in a Qualified Opportunity Zone Fund.
The second benefit offers a step up in tax basis for capital gains. There is a tax basis increase of 10% should the investment in the Qualified Opportunity Zone Fund be held for five years. If the asset is held for at least seven years, the tax basis will increase by an additional 5%. Thus, the step-up tax basis increases can help investors exclude up to 15% on the original taxable gains.
The third benefit offers a permanent tax exclusion. If the investor holds the initial investment in a Qualified Opportunity Zone Fund for more than ten years, the investor can enjoy a permanent exclusion from taxable income. It’s important to note that the exclusion only applies to gains accrued after the investment was made in a Qualified Opportunity Zone (www.Realwealthnetwork.com).
The Profile of an Opportunity Zone Investor?
The investor who would benefit the most from Opportunity Zone investing has a specific profile. Passive investors, like my client, would want to diversify their investment portfolio and enjoy the benefits of a professionally managed fund. The investor would have already received a gain from the sale of an asset, such as stocks, bonds, business, or real estate. Finally, the investor would also want to have access to their invested principal.
For more information about Opportunity Zone investing, contact your investment advisor and your CPA. As always, feel free to contact me for a complimentary review of your situation.
There are full-service investment advisors who are willing to accept accounts for both large and small investors. At empiriKal partners, llc ©, we’re geared to help all ATRA members, regardless of their stage of life or portfolio size.
Let us help you rather than going it alone. If you already have an investment advisor, congratulations. However, if you’d like to learn more about what investment advisors do for their clients, please feel free to reach out to me at empiriKalpartners.com for an individual assessment.
Edward Vela is an Investment Advisor and Estate Planning Specialist at empiriKal partners, llc ©, with 13 years of wealth management experience. He earned a Journalism Certification from the University of Massachusetts, a BA in Political Science, a Financial Planning Certification at UCLA, and an Executive MBA from the UCLA Anderson School of Management. You can contact Edward at 925-300-8805 or email edward@empiriKalpartners.com.