Defining Qualified Opportunity Zone Stock - Invest in Opportunity Zones

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The Opportunity Zone program created by the 2017 Tax Cuts and Jobs Act allows taxpayers to defer and potentially reduce capital gains taxes by investing in qualified Opportunity Zone property through a Qualified Opportunity Fund. Taxpayers with capital gains tax liability have 180 days from the date of realizing those gains to invest them in a Qualified Opportunity Fund and defer capital gains tax payments until December 31, 2026. If the investment is held for five years, the capital gains tax is reduced by 10%; after seven years, it is reduced another 5% for a total of 15%.

Qualifying Opportunity Zone property under the Act can take one of three forms: qualified Opportunity Zone business property, partnership interest in an Opportunity Zone business, or stock ownership in an Opportunity Zone business.

 

Defining Qualified Opportunity Zone Stock

Investing in a Qualified Opportunity Fund is similar to investing in a mutual fund. Taxpayers invest capital gains into the fund, and the fund manager uses the capital to buy other assets, such as business property or stock, within a qualified Opportunity Zone that the fund manager expects to appreciate in value.

A Qualified Opportunity Fund, however, offers investors benefits beyond growth in value of the original investment. In addition to deferring and reducing capital gains tax on original gains invested in the Qualified Opportunity Fund, taxpayers can avoid capital gains tax on any investments that are held in the fund for at least 10 years.

Unlike qualified Opportunity Zone business property, which is a tangible asset, Opportunity Zone stock is issued by an Opportunity Zone business to provide capital for the business. The Opportunity Zone business can use the money raised through stock issuance to fund operations, or to buy property or inventory for the business.

To qualify as an Opportunity Zone business for the purpose of Qualified Opportunity Fund stock ownership, the business must be located in an Opportunity Zone and generate at least 50% of its income from business operations in the Opportunity Zone.

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