What is a Qualified Opportunity Fund?

Opportunity Zone legislation within the Tax Cuts and Jobs Act of 2017 is a powerful tax strategy that uses tax incentives to attract long-term private investments and promote economic growth in designated urban and rural areas.

Through an investment vehicle called a Qualified Opportunity Fund, an investor potentially has the ability to:

  • Defer an existing capital gain upon the sale of appreciated assets; and
  • Avoid a capital gain on any profits resulting from the Qualified Opportunity Fund investments.

Qualified Opportunity Zone Map

Investor Benefits

Generally, investors who experience a capital gain from a sale or exchange of a capital asset and elect to invest such capital gain into a Qualified Opportunity Fund within 180 days after the sale or exchange may be eligible for certain benefits:

  • 1
    Ability to unlock original basis and separate it from their capital gain.
  • 2
    Ability to defer capital gain tax liability until December 31, 2026.
  • 3
    Ability to reduce capital gain tax liability by a total of 10%
    through a step-up in tax basis upon remaining invested in the Qualified Opportunity Fund for at least five years.
  • 4
    Ability to eliminate capital gain tax liability on the additional capital gain realized
    through the investment in the Qualified Opportunity Fund upon remaining invested in the Qualified Opportunity Fund for at least ten years.
  • 5
    Ability to support community development and make a social impact through private investment.

Community Benefits

Transforming and uplifting neighborhoods by injecting private capital into designated communities to help spur economic development and improve quality of life.

Who Qualifies

Anyone who recognizes a capital gain for Federal income tax purposes may qualify for the tax benefits. The capital gain can be from nearly any asset (business, real estate, stocks, bonds, etc.). This includes individuals, C corporations (including regular investment companies), Real Estate Investment Trusts (REITS), partnerships, S Corporations, trusts and estates. To defer the gain realized from the sale of an appreciated asset, the investor must reinvest the gain into a Qualified Opportunity Fund within 180 days of realizing the gain. Investors can invest the original basis from the appreciated asset sale as well into the Qualified Opportunity Fund, but only the portion of the investment attributable to the gain from the appreciated asset will be eligible for the exemption from tax on future potential appreciation in the Qualified Opportunity Fund.