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What are Opportunity Zones?

What are Opportunity Zones?

Thinking about investing in commercial property? Opportunity Zones could be the tool that propels you toward your next investment. Established by Congress through the Tax Cuts and Jobs Act of 2017, Opportunity Funds are an incentive to encourage long-term investments in low-income urban and rural communities nationwide. Through census data, Opportunity Zones are identified by Governors and the United States Department of Treasury across the states and its territories. Currently, there are over 8,700 Opportunity Zones. Explore the map of Opportunity Zones here.

Investors can use their money to develop a variety of projects, from industrial real estate and housing to infrastructure and existing or start-up businesses. In exchange, investors will receive certain federal capital gains tax advantage.

The program provides three primary tax benefits for investing unrealized capital gains in Opportunity Zones:

1. Temporary tax deferral. Investors may place existing assets with accumulated capital gains into Opportunity Funds. The deferred gain is not taxed until December 31, 2026 or when the asset is sold or disposed, whichever comes first.

2. Basis step-up of previously earned capital gains invested. For capital gains placed in Opportunity Funds for at least 5 years, investors’ basis on the original investment increases by 10 percent and by an additional 5% is invested for at least 7 years. This means up to 15% would be excluded from the original gain from taxation.

3. Permanent exclusion of taxable income on new gains. For investments held for at least 10 years, investors incur a permanent exclusion from any taxable income or capital gains produced through their investment in Opportunity Funds (the investment vehicle that invests in Opportunity Zones). This applied to additional gains, not the original gains.

If you’d like more information on what Opportunity Zones might mean for you and your future investments, reach out to an MGR representative.

 

By |2019-07-30T18:08:29-07:00July 29th, 2019|Property Management Tips & Tricks|0 Comments

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The MGR Review is designed to bring you the top news and tips regarding property management and real estate in Southern California. Our near forty years of experience in these industries give us a keen insight on how best to succeed. Let us know if there is a topic you would like us to discuss!