Understanding Federal Opportunity Zone Programs
The Federal Opportunity Zone Program is a community and economic development tool that drives long-term private investment into low-income communities throughout the country. The program encourages investors with recently realized capital gains to invest in real estate or development projects in exchange for reduced tax obligations.
The following incentives are offered to investors for putting their capital to work in these qualified opportunity zones:
Temporary, capital gain tax deferral:
- The period of capital gain tax deferral ends upon 12/31/2026 or an earlier sale
A step-up in basis:
- Investment held for 5 years – Basis increased by 10% of the deferred gain (90% taxed)
- Investment held for 7 years – basis increased by another 5% of the deferred gain (85% taxed)
Forgiveness of additional gains:
- Investment held for 10 years – Basis equal to fair market value; the forgiveness of gains on appreciation of investment of sale or exchange of Opportunity Fund investment. This exclusion only applies to gains accrued after investment in an Opportunity Fund.
The IRS and the U.S. Treasury have posted a list of Frequently Asked Questions about Opportunity Zones