What qualifies as an OZ Investment?
Buried deep within the ‘2017 Tax Cuts and Jobs Act’ is a tax incentive for investment in Qualified Opportunity Zones (QOZ). This may be the single most significant wealth building opportunity for anyone realizing capital gains from the sale of real estate, stocks, bonds or even a business. Perhaps the equivalent of the 1031 exchange rules on steroids, it offers not only a tax deferral on the capital gain, but also a tax reduction and permanent tax exemption on the new investment. What qualifies as an OZ Investment and what are they intended for? Under the Tax Act, each state designates a quarter of its eligible low-income communities as an OZ. Thus, encouraging investments to be used to start businesses, develop abandoned properties or provide low-income housing in distressed communities. Under the program, taxpayers can invest their capital gains into a third-party Qualified Opportunity Fund or a self-directed Fund within 180 days of recognizing the capital gain, thereby deferring the tax on the capital gain to December 31, 2026. The longer the funds stay invested, the larger the tax savings. This tax incentive is intended to help “areas in need of redevelopment” attract capital.