A key incentive of the federal opportunity zone program may have expired, but qualified opportunity zone funds continue to offer considerable long-term tax advantages for investing in private capital. In addition, legislative changes to opportunity zones currently under consideration in Congress may end up restoring the program’s 10-15% basis point boosts that expired at the end of last year.
What’s Next for Opportunity Zone Funds?
Opportunity zone funds reinvest unrealized capital gains into long-term projects in low-income communities, typically real estate located in a qualified opportunity zone (QOZ). There are more than 8,700 census tracts in U.S. urban, suburban, and rural areas that America’s governors and mayors have designated as economically distressed QOZs.
Current law allows QOZ investors to defer paying taxes on their investments until 2026. If a QOZ investment is held for 10 years, any appreciation on the investment essentially becomes tax-free.
Certain expired provisions of the law allowed QOZ investors to enjoy a 10% reduction in initially deferred capital gains. However, proposed updates to opportunity zones would:
- Extend the federal program and its related deferrals for another two years (2028 and 2023, respectively)
- Allow qualified opportunity zone funds to invest in other qualified opportunity zone funds
Notably, the bicameral, bi-partisan proposal would also increase the program’s reporting requirements — to promote more equitable distribution of QOZ investments — and sunset tracts no longer determined to be in distress.
Even if proposed updates to the opportunity zone program fail to proceed, QOZ funds remain a beneficial tax-advantaged option for long-term investing in private capital, while creating jobs and improving economic outcomes for people living in economically distressed communities.
Disclaimer: Altigo provides this information for educational purposes only. It should not be construed or relied upon as legal or tax advice.