Opportunity Zones

Investing in an Opportunity Zone? Here’s how you will receive a tax benefit.

The Opportunity Zones program was established by Congress in the Tax Cuts and Jobs Act of 2017 as an innovative approach to spurring economic development by providing tax benefits for long-term private sector investments in low-income urban and rural communities nationwide. You don’t have to live or own property in a Qualified Opportunity Zone to receive tax benefits. Anyone with capital gains from the sale of stock or property can invest in an Opportunity Fund and potentially receive tax benefits. Taxpayers can invest their capital gain into an Opportunity Fund and defer the tax on their capital gains until at least December 31, 2026. Additionally, if the investor holds his or her investment in an Opportunity Fund for five years before the tax on the deferred capital gain is due, a portion of the original deferred capital gain will be permanently forgiven.

The IRS has compiled Opportunity Zone FAQs that answer some of the basic principles of the Opportunity Zones program as well as some of the common misconceptions.

In order to benefit, one will need to invest through an Opportunity Fund set up as either a corporation or a partnership. The Funds then invest in qualified businesses and property located in Opportunity Zones. Opportunity Zones were identified by each state’s governor and approved by the U.S. Treasury.

Even if a person doesn’t live, work or have a business in an Opportunity Zone, he or she can still receive tax benefits by investing in an Opportunity Fund. Investments in certain properties or businesses could allow taxpayers to defer immediate capital gain from the sale of stock or property and permanently defer appreciation on their Opportunity Fund investments if they hold their ownerships in the Fund for 10 years. The Opportunity Funds use the capital invested to make equity investments in businesses and real estate in Opportunity Zones designated by each state.


To be a Qualified Opportunity Fund, the entity will need to self-certify with the IRS using Form 8996 with their first tax return reporting as an Opportunity Fund.

Instructions for completing this form can be found here. 

The Fund will also be required to hold 90 percent of its assets in Qualified Opportunity Zone property with the Fund being subject to semi-annual testing. Qualified Opportunity Zone property includes:

  • Qualified Opportunity Zone Stock
  • Qualified Opportunity Zone Partnership Interest
  • Qualified Opportunity Zone Business Property

Investing in an Opportunity Fund can provide tax benefits for investors. If an investor has capital gain from the sale of stock, business assets or other property, the investor can invest in an Opportunity Fund and defer the taxation of the gain. It sounds great, but there is a trick to taking full advantage of the tax benefit.

If you sell an asset with a $100,000 capital gain, you can invest up to $100,000 into an Opportunity Fund. The $100,000 of gain will be immediately deferred up to the earlier of December 31, 2026 or when the Opportunity Fund investment is sold. If the investor holds his or her interest in the Fund for five years before the tax on the original deferred gain is due, 10 percent of the deferred gain is permanently forgiven and not subject to tax. If the investor holds his or her interest in the Fund for at least 10 years, any appreciation in the investment will be added to the basis of the investment at the date of sale, permanently escaping tax.

For example, an investor has $100,000 of capital gain that is invested in a Fund before the end of 2021. If the investor holds it through December 31, 2026, 10% of the original $100,000 of capital gain is permanently excluded from the tax due at this time (approximately $2,000 based on current capital gains rates). After holding the investment for 10 years, the investment is sold for $150,000. Because the investor meets the 10-year holding period requirement, the $50,000 of appreciation that would otherwise be recognized as gain will instead be added to the investor’s basis in the project, and therefore, escape tax. So, on what would have been $150,000 of gain after 10 years, the total tax paid is only $18,000 (based on current capital gains rates).

Your original deferred capital gain (less any amount forgiven) will be subject to tax on whichever date comes first: either December 31, 2026 or when you sell your interest in an Opportunity Fund. Keep in mind that this creates an issue where gain is being recognized without the benefit of the cash to pay the tax unless you plan accordingly.

If you are interested in investing in an Opportunity Fund or expanding into an Opportunity Zone, Warren Averett can help you discover the options that are available to you and implement planning strategies to make the most of your investment. Our Firm is passionate about helping our clients save money on their taxes. We can help you determine if you are taking advantage of every tax savings opportunity that’s available to you. Our professionals guide you through the process to help you see if you are missing out on tax savings, at no risk to you.

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