Under new tax laws, investors can defer tax on any prior real estate gains until December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund, an investment vehicle organized to make investments in Qualified Opportunity Zones. In addition, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor would be eligible for a step up in basis equal to the fair market value of the investment on the date it is sold.
The Opportunity Zones program offers three tax benefits for investing in low-income communities:
- A temporary deferral of inclusion in taxable income for capital gains reinvested in an Opportunity Fund, until the earlier of the date on which the opportunity zone investment is sold or December 31, 2026.
- A step up in basis for capital gains reinvested in an Opportunity Fund, in the amount of 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years, and by an additional 5% if held for at least 7 years — thereby excluding up to 15% of the original gain from taxation.
- A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. (This exclusion applies to gains accrued after an investment in an Opportunity Fund.)
Treasury and the IRS still plan to address the certification of Opportunity Funds, which are required to have at least 90 percent of fund assets invested in Opportunity Zones. For more information or a map of Qualified Opportunity Zones, contact Regal Properties and consult your tax adviser.