The Qualified Opportunity Zones (“QOZs”) incentive is one of the largest new community development tax legislation created in a generation, established by the U.S. Congress in December 2017 through the Tax Cuts and Jobs Act (“TCJA”).
QOZs are designed to spur economic development by providing tax benefits to investors who invest prior capital gains in a Qualified Opportunity Fund ("QOF") within 180 days of the date such prior capital gains would have otherwise been realized, in the following ways:
Deferral
Tax on the original capital gain is not recognized immediately and is deferred until the investment is sold, or December 31, 2026, whichever comes first. If the investment is not sold before December 31, 2026, any remaining deferred gain is recognized at that time and taxed at the current income tax rates.
Elimination
Investors can permanently eliminate taxation on any capital gains that accrue after their investment into a QOF if the investment is held for at least 10 years. This is due to an increase in the basis of any investment held in a QOF for 10 years to 100 percent of its fair market value on the date it is sold or exchanged.
Opportunity Zone Map
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Qualified Opportunity Zones Background
QOZs were designed to encourage patient, long-term investments in certain low-income urban and rural communities throughout America that are within the boundaries of one or more designated QOZs, by providing a powerful new tax incentive for investors with capital gains in the stock market, real estate, and in other capital assets to reinvest those dollars into projects and businesses located in QOZs through special private investment vehicles meeting the requirements of the TCJA called Qualified Opportunity Zone Funds (“QOFs”).
QOZs were conceptualized in the bipartisan Investing in Opportunity Act incorporated in part in the TCJA, developed through the leadership of Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), and ultimately including nearly 100 Democratic and Republican congressional cosponsors.
In June 2018, the U.S. Department of the Treasury certified over 8,700 census tracts as QOZs in every U.S. state and territory, designations that will last over a decade through the end of 2028. Per the Economic Innovation Group, QOZs have an average poverty rate of nearly 31%, an average median family income of only 59% of its area median, contain 1.6 million places of business, 24 million jobs, 35 million Americans, and represent nearly 18% of total U.S. land area. According to the Urban Institute, less than 4% of QOZs are at high risk of rapid socioeconomic change, displacement, or gentrification.