Opportunity Zone Investments Offer Attractive Tax Benefits

Posted: 10-15-21 | Innovia Wealth

If you are considering selling your company, you know how important that decision is and how vital it is that you receive as much compensation for the time, energy, and money that you have invested in it. At this moment in time, because of the unpredictable nature of the economy and projected changes to the U.S. tax code, it’s more important than ever to make careful financial choices. Opportunity zone investments can qualify for substantial tax benefits. This is an investment strategy that can be used to minimize the impact of capital gains taxes.

What Is Opportunity Zone Investment?

The 2017 Tax and Jobs Act created Qualified Opportunity Zones. The goal of creating these zones was job creation and improved economic development in low-income areas. For this reason, certain tax benefits were created in order to offer investors attractive incentives. These include:

  • Tax deferral of capital gains until 2026 from almost any investment, including stocks, real estate, art, and business sales;
  • Tax reduction on the rollover gain by 10% if the opportunity zone investor holds onto the investment for at least 5 years by the end of 2026; and
  • Tax elimination for gain on the new opportunity zone fund investment if held for more than 10 years.

Opportunity zone investments can qualify for state tax benefits as well.

Which Areas are Qualified Opportunity Zones?

There are zone locations in more than 10,000 zip codes, including all 50 states, 5 U.S. territories, and the District of Columbia. They are not located just in economically distressed areas. As these areas attract investment, local housing and real estate appreciates and attracts more investment, creating a virtuous circle of more investment and greater property appreciation.

The real bonus for investors comes after 10 years – at which time the investment basis is stepped-up to fair market value. This means that the investor holding that asset for 10 years will pay zero dollars in capital gains tax if he sells it after the 10-year mark.

Every investment is different, of course, and not every Opportunity Zone investment will have the same amount of risk or opportunity. Each investment opportunity should be analyzed and evaluated individually, based on its own merits, and not just on the tax benefits it might provide, no matter how attractive those tax benefits may be.

Selling a business can be a stressful process. The last thing any business owner should have to worry about is a huge tax burden resulting from a successful sale. Strategies Wealth Advisors has access to certain Qualified Opportunity Zone funds that qualify for these tax benefits. If you would like more information on how this type of investment may work for you, contact us at Strategies Wealth Advisors.