The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund:
History of Opportunity Zones:
Opportunity Zones were conceived as an innovative approach to spurring long-term private sector investments in low-income communities nationwide.
The Opportunity Zones provision is based on the bipartisan Investing in Opportunity Act, (LINK TO: https://www.congress.gov/bill/115th-congress/house-bill/828) which was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), who led a regionally and politically diverse coalition of nearly 100 congressional cosponsors.
The concept was originally introduced in a 2015 paper, “Unlocking Private Capital to Facilitate Economic Growth in Distressed Areas,” to help address the persistent poverty and uneven recovery that left too many American communities behind. The idea has since been championed by a wide-ranging coalition of investors, entrepreneurs, community developers, economists, and other stakeholders.
A temporary deferral of inclusion in taxable income for capital
gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of by December 31, 2026.
Step-Up In Basis
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.
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. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.