Growing your investment is easy when you know what to do and where to look for the best opportunities. If you’re interested in the possibilities of real estate investments, though, you might have heard of qualified opportunity zones by now. With the 2017 Tax Cuts and Jobs Act, the Qualified Opportunity Zone program was established, providing tax perks for private investors. However, to see any of those profits, you’ll need to be willing to put in money in economically distressed communities and to leave it there for a long time.
In return, investors have the chance to defer and potentially cut down on the tax on the capital gains they’ll get. If you are thinking of going for this investment, here are a few things you should know.
Is This a Good Option for You?
Think about investing in an opportunity zone fund if you want to cut down on those capital gains. If you face substantial tax payments on yours, then this is a good investment move to make. Explore the many ways that the fund could work in your favor. However, make sure you’re fully aware of the conditions and terms before you sign up for one. That way, you’ll know if you can make the most out of that arrangement.
How Does It Work?
A clear understanding of the program is necessary before you proceed. For instance, there are conditions that require you to invest the return of principal along with the recognized capital gain. However, not all of that will be attributable to the capital gain. Only a portion of the investment will be eligible for the tax exemption. That exemption, too, is impacted by the further appreciation of the Opportunity Zone Investment. As for selling off any appreciated assets, the Opportunity Zone program allows for that move, so you can sell off your stock, but you will need to reinvest the gain into the Opportunity Zone Fund. You won’t have to invest in a similar kind of property to defer the gain, though, so that’s a bit of a relief. You’ll also need to understand how the 180 days from the end of the calendar year to make an investment in the zone.
What is a Qualified Opportunity Zone Fund?
A qualified opportunity zone is a property that qualifies as an opportunity zone stock. That means it is a qualified opportunity zone partnership interest or a qualified zone business property bought after December 31, 2017. The property must also have been used in a trade or business carried out in a Qualified Opportunity Zone or ownership interest in an entity (stock and partnership interests) operating with the tangible real estate property.
What are the Tax Savings Offered?
There are three ways through which the opportunity zone fund offers tax perks. First, through the tax deferral through 2026. The second option is to step up on the deferred gains by at least about 10 percent or about 15 percent. And lastly, no tax will be applied on the appreciation.
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