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Opportunity Funds are Knocking: Let them in and Learn How They Can Work for You

This is the first feature in a series of articles wherein we will dive into the new “Opportunity Fund” program.

The recently passed Tax Cuts and Jobs Act (TCJA) is most widely known for changing corporate tax rates, limiting the mortgage interest and state deduction for individuals, and for providing the qualified business income pass-through deduction. However, the TCJA also created a significant new economic development program, “Qualified Opportunity Zones,” that encourages private investment in businesses, projects and commercial property located in zones in every state and in each U.S. territory. 

New IRC Sections 1400Z-1 and 1400Z-2 will allow investors to defer capital gains, increase tax basis in long-term investments, and qualify for tax forgiveness on capital appreciation by reinvesting capital gain proceeds in Opportunity Funds.

Time to Mobilize

The opportunity zones have been finalized by the Treasury Department and are currently locked in through the end of 2028. Accordingly, entrepreneurs, investors, private equity funds, financial intermediaries, state and local governments, and the like can begin mobilizing to participate in the investment in these zones. 

Achieving Tax Savings

To take advantage of the tax benefits of the program, a taxpayer must make certain elections and reinvest capital-gain proceeds in an Opportunity Fund within 180 days from the date of the sale or exchange of a capital asset. Then, the Opportunity Fund must maintain at least 90% of assets in “Qualified Opportunity Zone property,” directly or through equity or partnership ownership. If the taxpayer and the Opportunity Fund comply with the rules, significant overall tax savings can be achieved thereby potentially adding to the overall investment return.

Stay tuned for subsequent articles which will answer some of the more nuanced questions that stakeholders are finding themselves grappling with as they learn more about the program and how to best take advantage of its features and benefits.

Vikram Agarwal is a shareholder with Bean Kinney & Korman with an expertise in tax law.  Please contact Vikram if you would like to learn more about the Opportunity Fund program at vagarwal@beankinney.com.

Any tax advice expressed above by Bean Kinney & Korman, PC was not intended or written to be used, and cannot be used, by any taxpayer to avoid U.S. federal tax penalties. If such advice was written or used to support the promotion or marketing of the matter addressed above, then each offeree should seek advice from an independent tax advisor.

This Bean Kinney & Korman publication provides information and comments on legal issues and developments. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek legal advice before taking any action with respect to the matters discussed herein.

  • Shareholder

    Vikram is a shareholder with Bean, Kinney & Korman representing a broad range of clients in tax matters. His tax practice consists of assisting businesses of all sizes in identifying and handling complex domestic and international ...