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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 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. Anybody with gains from the sale of stock or property can invest in an Opportunity Zone Fund and potentially receive tax benefits. A taxpayer can invest their gain into an Opportunity Zone Fund and defer the tax on their gains until at least December 31, 2026. Additionally, if the investor holds their investment in an Opportunity Zone Fund for 5 or 7 years, a portion of the original deferred gain will be permanently forgiven.

The IRS has compiled Opportunity Zone FAQs that our tax team found helpful.

In order to benefit, one will need to invest through Opportunity Zone Funds setup as either a corporation or a partnership. The Funds then invest in qualified businesses and property located in Opportunity Zones. Opportunity Zones are 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 Zone Funds if they hold their ownerships in the Fund for 10 years. The Opportunity Zone 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 Zone Fund, the entity will need to self-certify with the IRS using a form that is expected to be released in the fourth quarter of 2018. 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

The entity will need to complete the IRS Form 8996 to establish an Opportunity Fund. Instructions for completing this form can be found here. 

Investing in an Opportunity Zone Fund can provide tax benefits for investors. If an investor has gain from the sale of stock, business assets or other property, the investor can invest in an Opportunity Zone Fund and defer the taxation of their 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 gain, you can invest the $100,000 into an Opportunity Zone Fund. The $100,000 will not be taxable to the investor in the year of sale. If the investor holds their interest in the Fund for five years, 10 percent of the deferred gain is permanently forgiven and not subject to tax.  If the investor holds their interest in the Fund for seven years, 15 percent of the original deferred gain is permanently forgiven and not subject to tax. If the investor holds their 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 and permanently escape tax.

For example, an investor has $100,000 gain that they invest in a Fund, if they hold it for 10 years, 15 percent of the original gain will be forgiven for tax purposes. After holding the investment for 10 years, the investment is sold for $150,000. The $50,000 of appreciation that would otherwise be recognized as gain will instead be added to the investor’s basis in the project. So the investor will pay tax on $85,000 related to the original deferred gain and will escape tax on the sale of the investment due to holding the asset for at least 10 years.

Your original deferred 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 Zone Fund. If you still own the interest in an Opportunity Zone Fund after December 31, 2026, you will owe tax on the original deferred gain without any cash from the investment to pay the tax.

If you are interested in investing in an Opportunity Zone 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. If you think your company may be paying too much in taxes, learn more about our Quali-FinderTM assessment today. 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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