A Qualified Opportunity Fund is an investment vehicle organized as a corporation or partnership. The Fund utilizes an investor’s capital gain from a prior investment, with the specific purpose of investing in Qualified Opportunity Zone assets. A fund must hold at least 90 percent of its assets in qualifying Opportunity Zones.

Currently, the statute allows for broad participation in the creation of Opportunity Funds with the goal of drawing a large cross section of investors to support a variety of needs found in low income communities nationwide. In order to be eligible for the program, an investor must rollover (exchange) a capital gain into an Opportunity Fund within 180 days of realizing the gain. Any entity, (private investors, privately-held investment companies, banks, community development entities, financial institutions, venture capital groups, developer consortiums, regional economic development organizations, etc.) can participate so long as they follow the guidelines set out by the statute and The Treasury (forthcoming).  Please see Regulatory page for current updates as regulations are published.

The three pillars, or advantages, of participating in Opportunity Zone investments Vs. traditional investments are below: 

DEFER payment of capital gains until 2026

Capital gains tax is assessed upon gains or profits from the sale of various investment types.  By participating in the Opportunity Zone Program an investor has the ability to defer any or all capital gains taxes triggered when an asset is realized.  This includes gains made through traditional real estate, equities, bonds, a sale of business and more.  In order to be eligible for the tax deferment an investor must roll-over, exchange, all or a portion of the incurred capital gains into a Qualified Opportunity Fund (QOF) within 180 days of realizing the gain.  Then the QOF invests equity directly into Qualified Opportunity Zone real estate projects and or businesses. Participating in this exchange allows investors to defer federal capital gains taxes on those exchanged gains until December 31, 2026 (unless OZ investment is sold earlier).

REDUCE the deferred tax owed

In addition to deferring the tax liability, the basis of the exchanged gains may be increased up to 15 percent; dependent upon how long the asset is held in the Opportunity Zone Fund (OZF) investment.  The step-up in basis of the deferred gains (the decrease of total taxable gains the IRS can target) grows to 10 percent over a 5 year time frame.  If the OZF is held for 7 years the step-up in basis increases by an additional 5 percent, to 15 percent.  Ultimately, only 85 percent of the original capital gains would be eligible for taxation from the IRS.  The capital gains tax on this portion of the original gain will be due December 31, 2026 (Unless the OZ investment is sold earlier).

AVOID all capital gains tax

After holding an OZ investment for a period of 10 years any gains realized by the Opportunity Fund, from the sale of an investment located within a Qualified Opportunity Zone, becomes 100 percent exempt from federal capital gains tax. The code (New Code §1400Z-2(c)) bumps the basis of the asset  to the fair market value (FMV) at the date of sale.  This implies all gain, including the portion attributable to past depreciation deductions, is eliminated.  This provision does not apply to the initially deferred gain that was reinvested in the Opportunity Zone Fund, it only pertains to the profits earned by the OZ investment.