Qualified Opportunity Zones, The Next Big Thing in Investing
How Opportunity Zones Work: Own something worth money and sell it. Within 180 days of a capital gain, an investor can put that money into a qualified Opportunity Zone Fund.
OPPORTUNITY ZONE FUND - a partnership or corporation investing at least 90% of its assets in “property” in designated qualified opportunity zones.
Property can mean stock, partnership interests, or business property, like a building, which you have to have purchased after 2017, or that you substantially improve.
Say an investor sells stock today for a $1 million gain and puts it in a qualified opportunity fund. She would have nothing due now, but in 2026, she would have to pay taxes on 85% of the original $1 million. Then, if she sells the fund interest in 2028 for, say, $10 million, she would pay no taxes on the $9 million gain.
Any gain you have during the hold period of the fund, that’s tax-free, which is pretty remarkable, The 10-year hold is very enticing for a lot of investors.
There are requirements to getting the tax benefit. Effectively all of the use of the property has to be within the zone during the holding period. And a business in a qualified zone has to derive at least 50% of its gross income from active business in a qualified opportunity zone. And the investment cannot be in a “sin business,” like a country club or golf course, liquor store, massage parlor, racetrack, or any gambling venue. Nor can it be a facility that furthers the use of hot tubs or tanning.
More investment in communities that need it would mean more jobs and safer streets. The criticism of this program is that it will force out longtime residents and businesses, depriving them of the benefits of the neighborhood’s improvements. It may also help further fuel a bubble in commercial real estate.
There is also an irony in that it is billionaires who are leading the charge for this program. Those who were instrumental in the internet and tech revolutions that hollowed out many of these communities now want to put some money back. Can tax incentives really do anything to fix the entrenched inequality and economic strain in the U.S.? Investors may soon be able to find out—all while generating tax-free returns.
For more information about how Pintar Investment Company utilizes Opportunity Zone investments to substantially reduce tax liabilities.
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