What You Should Know about
Tips for Bay Area Real Estate Investors
in Opportunity Zones (QOZ/QOF)
created the federal Qualified Opportunity Zone (“QOZ”) program in the 2017 “Tax
Cuts and Jobs Act” to encourage economic growth in underserved communities through
tax benefits to investors.
The first set of Opportunity Zones, covering parts
of 18 states, were designated on April 9, 2018. Opportunity Zones have now been
designated in all 50 states as well U.S. territories.
is an Opportunity Zone?
In a nutshell, an Opportunity Zone is an
economically-distressed community where investors using private funds may defer, under certain conditions, capital gains by making an investment in an
Opportunity Zone Fund (QOF). Opportunity Zones are an economic development tool
designed to spur economic development and job creation in distressed
communities by long term investments.
2. Requirements to Invest in an Opportunity Zone
must have a net worth of $1 million, excluding your primary residence or have two
consecutive years of at least $200,000 in annual income if you’re a single tax
filer ($300,000 for married filers).
cannot buy the property on your own. You must buy the property through an
established Opportunity Zone Fund (QOF) which can be a partnership or a
than half the money invested into the Opportunity Zone Fund needs
to be spent on the development of the property.
3. Tax Benefits for Real Estate Investors
Only investors with qualifying
Capital Gains are eligible for Opportunity Fund tax benefits.
As an investor, you can defer federal
capital gains tax on money you have earned from another investment by
putting it into an Opportunity Zone Fund. When you sell (real
estate, stocks, bonds, etc.) an asset and the capital gain from that asset is
invested into a QOF or business, then the tax on the gain will be deferred
and not recognized until the earlier of the date on which the investment in
a QOF is sold or exchanged or December 31, 2026.
If the QOF investment is held for longer
than 5 years, there is a 10% exclusion of the deferred gain. An
additional 5% will apply if the investment is held at least 7 years. If an investor holds the investment in the Opportunity Fund for at least
ten years, the investor is eligible for an increase if the QOF investment equal
to its fair market value on the date that the QOF investment is sold or
exchanged. In other words, any appreciation on the invested gains while in the
Qualified Opportunity Fund is excluded from taxable income if the investment is
held for at least 10 years.
California investors, keep in mind that State of California taxes are not exempt, this only applies to federal taxes.
4. How to Optimize your Investment in an Opportunity Zone?
Once you identify the QOZ you are interested to invest in, you should find out what is already being
build or will be built in the near future in this opportunity zone.
You may then have the choice to invest
in an existing fund or create your own fund to buy a single property or a
portfolio of properties.
Lastly, just hold to your investment for as long as you can in order to get a
higher capital gains write off.
5. How to find Qualified Opportunity Zones?
list of designated Qualified Opportunity Zones can be found in IRS Notices and
a visual map of the census tracts designated as Qualified Opportunity Zones may
also be found at Opportunity Zones Resources.
Do not hesitate to get in touch if you are interested to know more about investing in
QOZ and QOF in the Bay Area.